Which of the following is a drawback of the currency board system?
A)The ease with which governments can set and manipulate interest rates acts as a dampener.
B)Higher domestic inflation rates compared to the inflation rate in the country to which the currency is pegged can make the currency uncompetitive.
C)The currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it,thus arresting liquidity.
D)It has all the disadvantages of a floating exchange rate regime.

Question

Quizplus · Accepted Answer

If local inflation rates remain higher than the inflation rate in the country to which the currency is pegged,the currencies of countries with currency boards can become uncompetitive and overvalued.

Which of the Following Is a Drawback of the Currency