Currency Board (Monetary Office)

The currency board is an exchange rate agreement whereby one country pegs its currency to that of another country. The foreign currency is referred to as the anchor currency. Everyone has the right to exchange any amount of money from the domestic currency into the anchor currency at the fixed exchange rate at any time. That is why the domestic money supply in the anchor country must be covered.

A currency board (the so-called monetary office) is set up to create the stability of a strong currency in inflation-prone and mostly poorer countries. For example, Argentina and Hong Kong had the US dollar as their anchor currency, and Estonia, Bosnia and Bulgaria had the euro.

see also monetary policy and monetary system

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