Why Might a Central Bank Oppose a Country Moving to a Fixed

question 60

Multiple Choice

Why might a central bank oppose a country moving to a fixed exchange rate?

• A)Fixed exchange rates limit the ability of central banks to change interest rates to affect the domestic economy.
• B)Fixed exchange rates often lead to higher inflation,which central banks tend to oppose.
• C)Fixed exchange rates force central banks to hold more foreign currency reserves than they would prefer.
• D)Fixed exchange rates increase the risk of private bank failures,which the central bank would need to bail out.

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