If a Country Pegs Its Currency to a Foreign Currency

Multiple Choice

If a country pegs its currency to a foreign currency, it no longer has the ability to use monetary policy to stabilize the economy because:

A) it no longer has a central bank.
B) monetary policy must be used to keep the exchange rate's market equilibrium value at its official value.
C) banks will begin to hold 100% of their deposits in reserves.
D) it must eliminate its currency from circulation and replace it with the foreign currency.