If a disequilibrium occurs in the foreign exchange market, what are possible solutions? Why might governments choose not to let the price of their currencies adjust to clear the market?
Governments can devalue their currencies, shift the supply and demand curves by buying and selling their own
currencies, ration foreign exchange, or draw on reserves. Governments might be reluctant to let the price rise
or fall because of the uncertainty and the destabilizing effect it has on trade.
Economics