By adopting a currency board, a developing country hopes to
A) drive interest rates down in order to increase domestic investment spending.
B) have its central bank switch from an inflationary policy to a deflationary policy.
C) discourage speculative attacks on its currency.
D) replace monetary policy with fiscal policy during times of economic downturn.

Question

Quizplus · Accepted Answer

By adopting a currency board, a developing country hopes to discourage speculative attacks on its currency by ensuring that the exchange rate is fixed to a stable international currency and by holding sufficient reserves to back the currency in circulation. This can help to boost market confidence and reduce the likelihood of speculative attacks. A currency board does not necessarily affect interest rates, inflation, or fiscal policy.

By Adopting a Currency Board, a Developing Country Hopes to