In 1991, Argentina decided to peg its currency (the Argentinean peso) to the U.S. dollar
To maintain the peg, Argentina had to purchase surplus pesos on the foreign exchange market, depleting its reserves of dollars to such an extent that it eventually had to abandon the peg. Show graphically what this implies about the peg relative to the equilibrium exchange rate in the market for the Argentinean peso.
If Argentina had to purchase surplus pesos on the foreign exchange market, that implies that the pegged exchange rate was above the market equilibrium exchange rate, as shown below.
You might also like to view...
The "Crime of ‘73" did not stop the Federal Treasury from buying massive amounts of silver at above-market prices before 1900
Indicate whether the statement is true or false
What's the most common way for a central bank to increase the money supply?
A. Sell bonds to the public B. Buy bonds from the public C. Collect higher taxes D. Buy bonds from the government