- Charles Enoch, and Tomás Baliño
- Published Date:
- September 1997
Currency Board Arrangements Issues and Experiences
By a Staff Team led by Tomas J.T. Balino and Charles Enoch and comprising Alain Ize Veerathai Santiprabhob Peter Stella
INTERNATIONAL MONETARY FUND
© 1997 International Monetary Fund
Currency board arrangements: issues and experiences / by a staff team led by Tomás J.T. Baliño and Charles Enoch and comprising Alain lze, Veerathai Santiprabhob, Peter Stella, — Washington, DC: International Monetary Fund. 1997.
p. cm. — (Occasional paper, ISSN 0251-6365: 151)
Includes bibliographical references (p.)
1. Currency boards—Cost effectiveness 2. Monetary policy 3. Foreign exchange. I. Baliño. Tomás J.T. II. Enoch. Charles, III. Ize, Alain. IV. Santipiahhob, Veerathai. V. Stella, Peter, 1957-VI. Series: Occasional paper (International Monetary Fund); no, 151. HG230.5.C76 1997
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- I Definitions and Basic Features
- II Considerations for Adopting a Currency Board
- III Scope for Monetary Policy and Lender-of-Last-Resort Support
- Scope for Day-to-Day Monetary Operations
- Prudential Issues and Lender of Last Resort
- Implications for Public Debt Management
- Duration of a Currency Board Arrangement
- Should Currency Board Arrangements Be Viewed as Transitory or Permanent?
- Legal Issues in Exiting a Currency Board Arrangement
- Exit Strategies
- Exit Conditions
- IV Implications of Currency Board Arrangements for the Design of IMF-Supported Programs
- Appendix I Interest Rate Convergence in Countries with a Currency Board Arrangement
- Appendix II Lender of Last Resort and Banking Crisis Management
- Appendix III Monetary Policy Implementation
- Appendix IV Background Tables
- 1. Argentina: Reserve Money and Its Components
- 2. Argentina, Chile, and Mexico: Inflation
- 3. Estonia, Latvia, and Lithuania: Inflation
- 4. Argentina: Real Growth in Broad Money and Domestic Credit
- 5. Estonia: Real Growth Rate of Claims on the Private Sector
- 6. Argentina, Chile, and Mexico: Nominal and Real Effective Exchange Rates
- 7. Hong Kong and Singapore: Inflation
- 8. Hong Kong and Singapore: Nominal and Real Effective Exchange Rates
- 9. Djibouti: Nominal and Real Effective Exchange Rates
The following symbols have been used throughout this paper;
- … to indicate that data are not available;
- — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist:
- – between years or months (e.g., 1994–95 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
- / between years (e.g., 1994/95) to indicate a crop or fiscal (financial) year.
- “Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
Currency board arrangements have recently undergone a revival. They have been introduced in this decade in Argentina, Estonia, and Lithuania and have been proposed for a number of other countries. This Occasional Paper provides a comprehensive analysis of the attractions and disadvantages of such arrangements in their various institutional configurations. In particular, the paper asks what defines currency board arrangements, what their strengths and weaknesses are, and what constraints they place on macroeconomic policies. It also reviews country experience with these arrangements.
The authors thank Manuel Guitián, Malcolm Knight, and V. Sundararajan for guidance and support, colleagues in the Monetary and Exchange Affairs Department and other departments of the IMF, and the members of the Executive Board for valuable comments and stimulating discussion on an earlier version of the paper that was presented at a Board seminar in January 1997. They are also indebted to Miguel A. Kiguel and Wai Sun Yung for arranging the provision of some of the data used in the paper. Kiran Sastry provided research assistance, and Magally Bernal, Amelia de Lucio, and Janet Stanford secretarial assistance. Juanita Roushdy of the External Relations Department edited the paper for publication and coordinated production.
The views expressed here are the sole responsibility of the authors and do not necessarily represent the opinions of the Executive Directors of the IMF or other members of the IMF staff.