A resource-rich developing country has recently experienced a massive commodity boom due to newly discovered natural gas fields. To prevent the domestic currency from appreciating—which would threaten the competitiveness of its emerging manufacturing and service sectors—the central bank has implemented a managed exchange rate policy, aggressively accumulating foreign reserves to keep the currency artificially undervalued.
Evaluate, with the use of the appropriate economic diagrams below, whether a central bank's policy of maintaining an artificially undervalued exchange rate to protect domestic non-resource sectors is beneficial to its long-term economic development.
