The currency board: an independent issuing institution

André Lara Resende ()

Brazilian Journal of Political Economy, 1992, vol. 12, issue 4, 582-590

Abstract: A successful stabilization program is a harmonic set of structural reforms. Fiscalequilibrium is not a sufficient condition. It is necessary to reestablish monetary credibility.Three alternatives to establish a monetary reference based on a foreign currency areexamined. A new currency issued by an independent institution fully backed by an internationallyaccepted reserve currency is the alternative proposed. It is argued that the institutionresponsible for the issuance of the new currency should be based on the experience ofCurrency Boards. Overvaluation of the currency due to residual inertial inflation is a frequentproblem. The gradual introduction of the new convertible currency is proposed as anattempt to reduce the degree of reference to past inflation in price formation. The risksassociated with a period of parallel circulation of two currencies are examined. Finally,some of the arguments against such kind of monetary reforms are briefly analyzed. JEL Classification: E52; E58; E42; E31.

Keywords: Inflation; stabilization; monetary regime; currency board (search for similar items in EconPapers)
Date: 1992
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