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WHILE currency pegs to the US dollar (i e, a fixed or linked exchange rate system) can bring benefits such as exchange rate stability and ease of international trade, they also come with significant risks, particularly in the context of increased volatility in globalisation.
The following are the main risks and case studies:
l Loss of Monetary Policy Independence
Risks: According to the ‘impossible triangle’ theory, under a fixed exchange rate system, the country needs to sacrifice monetary policy autonomy .
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