Some nations use a currency board to manage their currencies. How does this work?
A) It is all in the hands of international banks.
B) The International Monetary Fund manages the currency.
C) There is a fixed rate regime with a set of strict rules and policy guidelines to keep the currency's value stable.
D) The currency is allowed to float, but its fluctuations are reviewed periodically by a board of economists.

Question

Quizplus · Accepted Answer

In a currency board system, there is a fixed rate regime with strict rules and policy guidelines to maintain the stability of the currency's value. This means that the value of the currency is pegged to another currency, typically a stronger one, and the central bank is required to hold enough reserves in that currency to back up the local currency in circulation. The currency board is responsible for ensuring that these rules are followed and that the exchange rate remains stable. This system is different from a floating exchange rate regime, where the value of the currency is determined by market forces.

Some Nations Use a Currency Board to Manage Their Currencies