How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?
A) borrowing funds from the International Monetary Fund and the World Bank
B) maintaining a trade surplus with foreign countries
C) holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued
D) importing more goods from foreign countries than it exports
E) printing foreign currencies

Question

Quizplus · Accepted Answer

A currency board makes its commitment credible by holding foreign currency reserves equal to at least 100 percent of the domestic currency issued, ensuring it can convert domestic currency into the foreign currency at the fixed exchange rate on demand.

How Does a Country That Introduces a Currency Board Make