Political tensions may arise from nations pegging to a center base country's currency if:
A) asymmetric shocks cause the home nation to lose the power to stabilize.
B) it is determined that the center nation has been misrepresenting the value of its currency.
C) financing of military spending becomes more difficult.
D) interest rates are affected.

Question

Quizplus · Accepted Answer

If asymmetric shocks (sudden events that affect one country or a group of countries differently than others) cause the home nation to lose its ability to stabilize its economy, tensions may arise as the center country's currency peg may no longer be suitable for the home nation's economic needs. This can lead to political tensions and disputes between the two countries. The other options (B, C, and D) may also cause tensions, but they are not necessarily direct consequences of pegging to a center country's currency.

Political Tensions May Arise from Nations Pegging to a Center