Currency Boards: Analysis, Risks and Benefits

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A currency board is a country's monetary authority that is tasked with sustaining a fixed exchange rate along with a foreign currency. The control of the money supply and exchange rate is delegated to a monetary authority by a currency board. This monetary authority then makes decisions concerning the currency valuation of a country. The currency board permits limitless exchange of the domestic currency with foreign currency to the agents. It provides stable exchange rates that facilitate investment and trade. Currency boards are also well-known for controlling inflation. However, there are certain risks associated with the currency boards. In a crisis, the investors can quickly exchange their domestic currency for foreign currency, leading to an increase in the interest rates. This can severely impact the reserve and liquidity requirements of the banks. This book analyses the risks and benefits associated with currency boards. It is appropriate for students seeking detailed information in this area of study as well as for experts.