It seems pretty logical for a dollar peg to be broken to the downside when a nation's financial status is deemed unworthy to hold its currency at a certain ratio for dollars; the only way a nation can support its own currency is to sell foreign reserves, and there is a limit to that end. However, what's to prevent any nation from depreciating its own currency to any ratio to dollars it wanted to? What is the economic mechanism (or unwanted result) that ultimately prevents a government like Japan or Hong Kong from just infinitely selling its own currency on the open market?
"However, what's to prevent any nation from depreciating its own currency to any ratio to dollars it wanted to? What is the economic mechanism (or unwanted result) that ultimately prevents a government like Japan or Hong Kong from just infinitely selling its own currency on the open market?" thats exactly what they will eventually have to do to remain competitive if the us$ keeps falling or they wont be able to export to us. http://www.mises.org/fullstory.asp?control=1345
Interesting link. So now is it just a game of chicken where all sides will press for advantage under the spectre of a "doomsday scenario" -- a financial cold war, so to speak?