Dual Currency Boards: A Proposal for Currency Stability

Stefan Oppers

No 2000/199, IMF Working Papers from International Monetary Fund

Abstract: This paper shows that extending the convertibility guarantee of the traditional currency board to a second reserve currency brings about an automatic, market-driven change of the peg when the initial reserve currency appreciates beyond a specified level. The “dual” currency board thus maintains the advantages of a hard peg, but avoids the economic difficulties associated with the link to an overvalued reserve currency. As an added benefit, the system has the potential to promote global currency stability, with the reserves of the dual currency board country acting as a buffer stock to the exchange cross-rate of the chosen reserve currencies.

Keywords: WP; currency; exchange rate; reserve currency; euro; dollar; Exchange rate regimes; fixed exchange rates; currency board; cross rate; parity relationship; depreciation vis-à-vis; money machine; parity euro-dollar rate; currency movement; CB euro rate; currency Board rate; currency Board system; currency-board cross rate; euro-dollar rate; currency stability; Currency boards; Reserve currencies; Currencies; Exchange rates; Conventional peg; Global (search for similar items in EconPapers)
Pages: 22
Date: 2000-12-01
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Citations: View citations in EconPapers (8)

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