In the event a nation adopts a currency board system to peg its exchange rate:
A) sterilization occurs more often.
B) sterilization is impossible.
C) sterilization means all traders have access to currency reserves.
D) the nation will have to abandon the system whenever the central bank wants to take a holiday.

Question

Quizplus · Accepted Answer

In a currency board system, the central bank is required to back every unit of domestic currency with a corresponding unit of a foreign currency, typically the US dollar or the euro. This means that the central bank does not have the ability to independently increase or decrease the money supply, making sterilization impossible.

In the Event a Nation Adopts a Currency Board System