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Currency Boards in Retrospect and Prospect$
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Holger C. Wolf, Atish R. Ghosh, Helge Berger, and Anne-Marie Gulde

Print publication date: 2008

Print ISBN-13: 9780262232654

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262232654.001.0001

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Why Do Countries Choose Currency Boards?

Why Do Countries Choose Currency Boards?

(p.25) 3 Why Do Countries Choose Currency Boards?
Currency Boards in Retrospect and Prospect

Wolf Holger C.

Ghosh Atish R.

Berger Helge

Gulde Anne-Marie

The MIT Press

This chapter presents theoretical arguments to explain why countries may or may not opt for a currency board arrangement. The adoption of a currency board arrangement can be seen as being based on two distinct decisions: first, the choice of a fixed over a floating exchange rate regime; and, second, within the spectrum of pegged exchange rate regimes, the selection of a hard peg over a traditional “softer” peg. The chapter reviews the relative merits of fixed versus floating exchange rates before turning to the trade-off between the credibility gain provided by a hard peg and the easier escape in the face of shocks allowed by softer pegs.

Keywords:   currency board arrangement, fixed exchange rate, floating exchange rate, pegged exchange rate, hard peg, soft peg

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