Question

Point out a demerit of the fixed exchange rate.

पर्याय

• BOP deficit countries run down the stock of gold 

• BOP surplus countries run down the stock of gold 

• Has no effect on the stock of gold

• None of the above 

Answer 1

BOP deficit countries run down the stock of gold

Explanation:

The fixed exchange rate, on the other hand, had a significant flaw in that countries with substantial and persistent balance of payments deficits lost gold and other foreign assets: This could not continue indefinitely because the supply of gold and other currencies would have run out. Countries with large budget deficits saw their international reserves dwindle, forcing them to discount their currencies. The depreciation has the potential to cause inflation. Countries with a deficit balance of payments are obliged to devalue their currency to cover the imbalance due to the depletion of gold and foreign currency reserves.