In: Economics
Answer:- Peg means a fixed exchange rate of a currency that the
country fixed agaung any specific international currency.
Collapsing of peg means the situation when the country feels the
imports to be too expensive.
In Argentina, when the demand for US dollars increased, then the
demand for their domestic currency decreased. This caused the fall
in the exchange rate if Argentina's currency with respect to US
dollars, due to the market forces. This whole process is referred
to as 'Argentina's peg collapsed'.
This collapsing of peg is catastrophic for borrowers in
Argentina because:-
Due to the increase in demand for US dollars and decrease in demand
for the domestic currency, the exchange rate has steeply risen and
now, the imports are too expensive for Argentina because now they
have to pay a large amount as the exchange rate has risen . Now the
borrowers have to pay large quantities of Argentina's currency in
order to repay the loans. Hence, it is catastrophic for borrowers
in