Title: The quest for sound money: currency boards to the rescue
Abstract:Some countries with high inflation have adopted another nations more stable currency: Panama uses the U.S. dollar, gaining price stability and easier trade with its primary partner. But this arrangeme...Some countries with high inflation have adopted another nations more stable currency: Panama uses the U.S. dollar, gaining price stability and easier trade with its primary partner. But this arrangement grants an interest-free loan to the government whose currency is used. And the nation using the currency forgoes any income on the foreign currency holdings. ; One alternative, a currency board, achieves the other countrys monetary stability without these costs. Currency boards issue a domestic currency in return for the foreign currency, at a fixed exchange rate. Boards also hold assets denominated in the foreign currency that are at least equal in value--at a fixed exchange rate--to the total domestic currency issued. Some have suggested that currency boards might \rescue the monetary systems of Eastern Europe and the former Soviet Union. The author expresses a number of reservations. Above all, it is unclear how a currency board can arrest inflation without like-minded government policies: \Dramatic results should not be expected from the inauguration of a currency board in the absence of other financial reforms.Read More
Publication Year: 1992
Publication Date: 1992-01-01
Language: en
Type: article
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Cited By Count: 6
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