FACTORS INHIBITING DEFLATIONARY BIAS IN CURRENCY BOARD ECONOMIES: EVIDENCE FROM THE COLONIAL ERA

Malcolm Treadgold

Australian Economic History Review, 2006, vol. 46, issue 2, pages 130-154

Abstract: A traditional criticism of currency boards is that they impart a deflationary bias to growing economies. Three factors, however, may inhibit the bias: increases in the velocity of money; increases in the monetary base, which under a currency board occur only through balance-of-payments surpluses; and increases in the money multiplier. This article investigates each of the factors in Fiji, Ghana, Jamaica and Malaya over various periods near the end of the colonial era. Except in Malaya, where the money multiplier declined, all helped prevent deflationary outcomes. In broad terms, growth in the monetary base was the most important. Copyright 2006 The Authors; Journal compilation Blackwell Publishing Asia Pty Ltd and the Economic History Society of Australia and New Zealand 2006.

Date: 2006

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