Authors: Buks Wessels
Addresses: Department of Economics, University of the Free State, P.O. Box 339, Bloemfontein, South Africa
Abstract: Currency Board Arrangements (CBAs) are currently advocated as a super-fixed exchange rate solution to exchange rate volatility. This paper examines the operation, benefits and disadvantages of CBAs. Benefits comprise improved policy credibility, lower inflation, increased economic growth, increased foreign capital flows, exchange rate stability and sharply reduced currency speculation. These are compared with several shortcomings of CBAs, such as the absence of a lender of last resort, real exchange rate misalignments and their consequences for the economy. The paper next focuses on the type of country that would be the most likely candidate to benefit from a CBA.
Keywords: currency boards; fixed exchange rates; super-fixed regimes; exchange rate options; exchange rate volatility; CBAs.
World Review of Entrepreneurship, Management and Sustainable Development, 2006 Vol.2 No.4, pp.351 - 361
Available online: 10 Jul 2006 *Full-text access for editors Access for subscribers Purchase this article Comment on this article