 The quest for sound money: currency boards to the rescueNorman S. Fieleke New England Economic Review, 1992, issue Nov, 14-24 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 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.\" Keywords: Money; Currency boards; Foreign exchange - Law and legislation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbne:y:1992:i:nov:p:14-24 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in New England Economic Review from Federal Reserve Bank of Boston Contact information at EDIRC. |
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