Currency baskets offer a diversified approach to exchange rate management from "summary" of International Money and Finance by Michael Melvin
Currency baskets are a collection of various currencies that are weighted in proportion to their importance in international trade and finance. By using a currency basket, policymakers can manage exchange rate risks more effectively by diversifying their exposure to different currencies. This diversification helps reduce the impact of sudden fluctuations in any single currency on the overall value of the basket. One advantage of using a currency basket is that it can provide more stability in exchange rates compared to pegging a currency to a single currency or a fixed exchange rate regime. This stability can help reduce volatility in international trade and investment flows, making it easier for businesses...
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