An unexpected devaluation of the local currency

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An African country has a policy of fixing the exchange rate value of its currency to the U.S. dollar. Banks in the country have a business model in which the banks pay competitive interest rates to attract U.S. dollar deposits, and the banks then use these funds to make higher-interest loans denominated in the local currency.

How likely would an unexpected devaluation of the local currency be to lead to banking crisis? Why?

Reference no: EM131213728

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