You are a citizen of Aidin which is a large emerging economy. Like many other economies, Aidin is battered by the onslaught of Covid. Your country is undergoing recession due to Covid. One night during dinner you switch on the national television and your prime minister appears in between your favourite programme to make a very important announcement. While he welcomes and calls for the attention of all his brothers and sisters (countrymen/women), the screen gets divided and the US President appears in the split screen seated in his desk at the White House. The PM tells the nation that to improve the prospects of economic growth in the new year (which has come with new hope due to the Covid Vaccine) the currency of Aidin was going to be pegged with the US$ from mid night. Given that the currency is being pegged to US$, it would help improve the economic prospects and create employment for the millions of Aidinians who have lost their jobs and otherwise. The US president mentions that he is hopeful that Aidin would allow easier flow of capital between the two countries and welcomes the decision of Aidin to peg the currency. The announcement ends with the PM calling the US president his true friend. You get to see visuals of a virtual hug of the prime minister of Aidin and the US president. Your favourite programme resumes thereafter.

(a)Does pegging the currency to the US$ make sense for Aidin? Why or why not? Clearly describe the conditions in each case. (Marks 7)

(b)What are the risks that Aidin is getting into?(Marks 8)