I agree.
However, under a fixed system when £ ought to appreciate, the UK government has an infinite amount of £ to sell, and they can in theory keep on building up their $ reserve. Is this true? (by the way, does this increase the money supply in the UK, and lower the interest rate?)
Also under a fixed system where there's control of capital flow (such as in China), why do you still need to have a foreign currency reserve?
Going back to the original quesiton, is it true that under the above two scenarios, the fixed exchange rate system will have NO EFFECT on keeping inflation rates low?
Thanks!
Last edited by a moderator: Aug 20, 2007