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Consider a fixed exchange rate system. Why is a persistent Balance of Payments deficit a cause...

Consider a fixed exchange rate system. Why is a persistent Balance of Payments deficit a cause for concern under a fixed exchange rate system?
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A fixed exchange rate system is that system where at fixed rate one currency is exchanged with another irrespective of changes in demand and supply of either currency.

Whenever balance of payment deficit occurs then it is required for the country to sell its dollar reserves into foreign exchange market. When such deficits are recurring, the country will loose great reserve of foreign exchange in dollars. This may make it unable to defend it's fixed exchange price. Eventually devaluation will occur of the currency.

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