Currency boards are often established to provide credibility to a country's monetary policy, especially after periods of high inflation. They do this by pegging the local currency to a foreign currency, thus limiting the local central bank's ability to print money and pursue independent monetary policy.

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A Currency Board

Question 25

Multiple Choice

A currency board:

A) has the power to establish monetary policy and determine exchange rates.
B) is an agency of a country's central bank.
C) has been used to establish credibility in the financial markets after long periods of inflation.
D) gives a country more independence in both monetary and fiscal policy.

Correct Answer: