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Suppose that the central bank of Mexico pegs the exchange rate with the US Dollar at 20 Pesos per 1 Dollar. Under current economic conditions,
Suppose that the central bank of Mexico pegs the exchange rate with the US Dollar at 20 Pesos per 1 Dollar. Under current economic conditions, Banco of Mexico does not need to intervene as demand and supply intersects at 20 Pesos per Dollar. Suppose that six months later the demand for Dollars in exchange of Pesos declines. The supply does not change. What does the central bank of Mexico need to do in order to maintain the peg?
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