Under a currency board, the central bank holds ________, so that the domestic currency is ________ by the foreign exchange.

Question

Quizplus · Accepted Answer

Under a currency board, the central bank holds foreign exchange reserves, typically in the form of a specific foreign currency, so that the domestic currency is fully backed by these reserves. This means that the supply of domestic currency is directly tied to the amount of foreign exchange reserves held by the central bank, providing a fixed exchange rate between the domestic currency and the foreign currency. Gold and domestic bonds are not typically used as backing for a currency board system.

Under a Currency Board, the Central Bank Holds ________, So