A currency board arrangement is
A)when the currency of another country circulates as the sole legal tender.
B)when the country belongs to a monetary or currency union in which the same legal tender is shared by the members of the union.
C)a monetary regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate,combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation.
D)where the country pegs its currency at a fixed rate to a major currency where the exchange rate fluctuates within a narrow margin of less than one percent.

Question

Quizplus · Accepted Answer

A currency board arrangement involves an explicit legislative commitment by a country to exchange its domestic currency at a fixed exchange rate with a specified foreign currency. This is typically combined with restrictions on the issuing authority to ensure that the commitment is fulfilled. The arrangement is different from a pegged exchange rate system, as the latter does not necessarily have the same legislative commitment and regulatory framework. A currency board arrangement is often used as a means of achieving exchange rate stability and promoting monetary discipline.

A Currency Board Arrangement Is