A situation in which maintaining the peg could cause worse harms to the economy (such as high interest rates) may sway even prudent and cautious central bankers to abandon it. This situation is called:
A) the rolling peg.
B) the contingency claim.
C) a contingent commitment.
D) a partial peg.

Question

Quizplus · Accepted Answer

A contingent commitment refers to a commitment made by a central bank to maintain a fixed exchange rate system as long as certain conditions are met. However, if these conditions change and maintaining the fixed exchange rate system could lead to worse harms to the economy, the central bank may choose to abandon it. This is known as a contingent commitment and is a situation in which maintaining the peg could cause worse harms to the economy.

A Situation in Which Maintaining the Peg Could Cause Worse