Currency Board

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  • The commitment by one country to allow its currency to be converted to, or exchanged for, another country's currency at a fixed exchange rate. The monetary or central bank in a country that chooses a currency board monetary system must ensure that it has an adequate amount of the foreign currency that will be exchangeable for the country's domestic currency. Since the domestic currency is exchangeable for the foreign currency at a fixed exchange rate, the country selecting a currency board system must have sufficient foreign reserves to cover the money supply of the country. This means that the country cannot expand or introduce any additional currency unless that amount is backed by an equal amount of the foreign currency. Therefore, the country must ...

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