publication . Article . 2013

Unemployment Gap in the Currency Board Regime

Novak Kondić; Borivoje D. Krušković;
Open Access
  • Published: 01 Jan 2013 Journal: Journal of Central banking Theory and Practice, volume 2, issue 3, pages 71-84
A currency board combines three elements: a fixed exchange rate between a country’s currency and an “anchor currency,” automatic convertibility, and a long-term commitment to the system, often made explicit in the central bank law. The main reason for countries to consider a currency board is to demonstrate that they are pursuing an anti-inflationary policy. The mechanism works through changes in the money supply, which lead to interest rate changes, which, in turn, encourage funds to move between the domestic and the anchor currency. This is essentially the same mechanism that operates under a fixed exchange rate, but the exchange rate guarantee implied in the ...
free text keywords: currency board, exchange rate, devaluation, inflation, jel:E31, jel:E52, jel:E58
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