Problem
We noted in this chapter that foreign central banks, especially in Asia, accumulated large dollar foreign reserves after 2000. One persistent worry was that those central banks, fearing dollar depreciation, would shift their reserve holdings from dollars to euros. Show that this action would be equivalent to a huge sterilized sale of dollars in the foreign exchange market. What might be the effects? Be sure to spell out your assumption about perfect versus imperfect asset substitutability.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.