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Dual Currency Boards

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Author Info

  • Stefan E. Oppers

Abstract

This paper shows that extending the convertibility guarantee of the traditional currency board to a second reserve currency brings about an automatic, market-driven change of the peg when the initial reserve currency appreciates beyond a specified level. The “dual” currency board thus maintains the advantages of a hard peg, but avoids the economic difficulties associated with the link to an overvalued reserve currency. As an added benefit, the system has the potential to promote global currency stability, with the reserves of the dual currency board country acting as a buffer stock to the exchange cross-rate of the chosen reserve currencies.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/199.

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Length: 22
Date of creation: 01 Dec 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/199

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Related research

Keywords: Currency boards; Exchange rate regimes; currency board; exchange rate; reserve currency; reserve currencies; domestic currency; exchange rates; real exchange rate; currency areas; reserve holdings; dollar exchange rate; market exchange rate; currency markets; fixed exchange rate; euro exchange rate; foreign exchange; effective exchange rate; central bank; currency risk; currency convertibility; exchange rate data; exchange rate dynamics; foreign exchange holdings; exchange rate arrangement; exchange rate flexibility; market exchange rates; overvalued exchange rate; foreign exchange reserves; floating exchange rates; exchange rate movements; real effective exchange rate; exchange rate regime; exchange reserves;

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Citations

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Cited by:
  1. Busse, Matthias & Hefeker, Carsten & Koopmann, Georg, 2006. "Between two poles: A dual currency board for Mercosur," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 349-362, December.
  2. Alessandro Rebucci, 2004. "Monetary Rules for Emerging Market Economies," Econometric Society 2004 North American Summer Meetings 644, Econometric Society.
  3. Wu, Ying, 2005. "A modified currency board system: Theory and evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 353-367, October.
  4. Marie-Thérèse Camilleri Gilson, 2004. "An Institutional Framework for Comparing Emerging Market Currency Boards," IMF Working Papers 04/180, International Monetary Fund.
  5. Dominique Torre & Alain Raybaut, 2004. "Unions monétaires, caisses d'émission et dollarisation : les fondements analytiques des systèmes de change « ultra-fixes »," Revue d'Économie Financière, Programme National Persée, vol. 75(2), pages 37-54.
  6. Behrouz Guerami & S. Nuri Erbas & George T. Abed, 2003. "The GCC Monetary Union," IMF Working Papers 03/66, International Monetary Fund.
  7. Maute, Jutta, 2002. "Stabilization via currency board," Violette Reihe Arbeitspapiere 18/2002, Promotionsschwerpunkt "Globalisierung und Beschaeftigung".

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