The disadvantage of a pegged exchange rate regime is that it aggravate

QUESTION

The disadvantage of a pegged exchange rate regime is that it aggravates inflationary pressures in a country.

Indicate whether the statement is true or false.

ANSWER

FALSE
Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency so that, for example, as the U.S. dollar rises in value, its own currency rises too. Pegged exchange rates are popular among many of the world’s smaller nations. As with a full fixed exchange rate regime, the great virtue claimed for a pegged exchange rate is that it imposes monetary discipline on a country and leads to low inflation.