Years of boom, buoyed by cheap foreign-currency loans and a currency pegged to the euro, have turned to a spectacular bust.
Argentina broke its supposedly irrevocable currency peg to the dollar a few months later.
Because of China's huge current account surplus, the PBoC has to sell renminbi and buy dollar assets to maintain the currency peg.
That seemed to pose little danger as long as Latvia could credibly keep its currency pegged to the euro.
Just over 10 years ago, during the Asian financial crisis, the world's primary concern was whether China would hold its currency peg to help stabilize the falling economic dominoes.
Shifting to a currency peg does not mean a central bank would suddenly dump its dollar assets.
All three countries have fixed exchange rates (currency boards in Estonia and Lithuania, a currency peg in Latvia) fully backed by foreign-currency reserves.
One prime possibility, he says: Switching Hong Kong's currency peg from the U. S. dollar to the yuan.
They point to Britain and Italy, which abandoned their currency pegs in 1992—and then recovered quickly from recession.
The inflexibility of currency pegs has long been cited as a reason for having floating rates.
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