Modern Currency Boards: Structural and Institutional Aspects
Modern Currency Boards: Structural and Institutional Aspects
This chapter notes some of the practical decisions and trade-offs involved in designing a currency board arrangement (CBA). It then considers how modern currency boards have been designed in terms of these trade-offs. Modern boards can be divided into two broad categories. The first comprises the early adopters, including the Cayman Islands, the members of the East Carribean arrangement, Brunei–Darussalam, and Djibouti. These boards retain the characteristics of the early boards, including their root in trade facilitation rather than stabilization objectives. The second group consists of more recent cases; generally countries that adopted currency boards in a deliberate attempt to import credibility, either in the context of stabilization programs (Argentina, Bulgaria, Lithuania, and Hong Kong) or as an initial arrangement in a newly independent country (Bosnia and Hevzegovina, Estonia). For these countries, the currency board is a crucial component of a reform package and often remains a contentious political issue for some time after its adoption.
Keywords: currency board arrangement, trade-offs, exchange rate regime, modern boards, credibility, stabilization
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