Currency boards are exchange rate arrangements in which the exchange rate is fixed to an anchor currency and central banks just buy and sell domestic currency at this exchange rate. We review the advantages and disadvantages of currency boards. While some of the alleged benefits of currency boards have diminished hand in hand with a reduction in inflation rates in most countries since the mid-1990s, currency boards may remain an attractive option for certain countries.
KeywordsBank crises Central bank independence Commitment Crredibility Currency boards Currency unions Dollarization Exchange rate policy Foreign exchange markets Inflation Inflation targeting Inflation expectations International reserves Lender of last resort Monetary base Monetary policy Money supply Optimal currency area Seigniorage
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