Why A Currency Board Is A Rule Based Monetary Institution

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A currency board is a rule-based monetary institution that first established in the British colony of Mauritius in 1849(Kwan and Lui, 1999). Since then, the board introduced to more than 70 countries and issued money for British colonies, which included Africa, Asia, the Caribbean, and the Middle East as well as a few other small countries (Walters and Hanke, 1992). This development reached its heyday in the 1940s (Hanke, Jonung, and Schuler, 1993). After that, the Second World War changed this situation. The newly independent territories from British colonies replaced the currency board system to the central bank system. Until now, few currency boards still survived. Hence, some people supported that the currency boards is out of the centre stage with losing its practical importance on the basis of historical experiences. However, Kwan and Lui (1999) did not share the identical view with these people. They argued that the currency boards begin to attract widespread attention due to the effect on maintaining stable exchange rate, which is a significant feature to confront the global financial crisis. Because of this characteristic, Argentina (1991), Estonia (1992), Lithuania (1994) and Bulgaria (1997) have promulgated the law to support establishing the currency boards. If the result of this measure can stabilize the currency and economic effectively, many countries will introduce the boards eventually. As Schwartz (1993) had commented, “a watershed would have been reached
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