A currency board system limits the ability of the government to print money and, thereby, create inflationary pressures.

Question

Quizplus · Accepted Answer

A currency board system involves fixing the exchange rate of a country's currency to a foreign currency, and backing it with a reserve of foreign currency. This restricts the government's ability to create money or manipulate interest rates, thereby limiting inflationary pressures. Instead, the supply of the local currency is determined by the supply of the foreign currency in the reserve, leading to a more stable and predictable monetary system.

A Currency Board System Limits the Ability of the Government