What is a potential consequence of changing the currency peg?

Changing the currency peg can lead to creation of economic turmoil and uncertainty because it disrupts the fixed relationship between the pegged currency and another currency, often leading to volatility in exchange rates. This uncertainty may impact businesses and investors, who rely on stable currency values for planning and investment decisions. If the peg is changed, it can cause fluctuations that affect trade balances, investment flows, and overall economic confidence.

In scenarios where currency pegs are altered, markets often react swiftly and unpredictably. This can lead to capital flight, where investors withdraw investments rapidly, and could potentially cause inflation or deflation depending on how the new peg is perceived and its impact on domestic economic conditions.

While changing a currency peg might work towards addressing specific economic challenges or imbalances, it generally introduces a level of risk and unpredictability that can undermine economic stability in the short to medium term. Therefore, the correct choice reflects the reality of such economic changes.