Evaluate a fixed exchange rate system
On one hand, this system has many advantages. It reduces uncertainty, ensures sensible government policies on inglation, reduces speculation and flunctuations... A reduced exchange rate can increase employment and an increase exchange rate can decrease inflation. A fixed exchange rate system can also improve current account deficit. On the other hand, there are disadvantages. The government is compelled to keep exchange rate fixed. It must keep large forex reserves, it creates less competition and could cause international disagreement.
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