Question

Explain the similarities and the differences between a currency board and a fixed exchange rate.

Answer 1

Answer : Similarities and difference between currency board and a fixed exchange rate are

Similarities are:

• Currency board is a Monetary authority promise to converting domestic currency into another currency at a fixed exchange rate. Currency board has controlled fixed exchange rate.
• Both currency board and fixed exchange rate related to control Monetary policy of the country.
• Currency board and fixed exchange rate are equal amount held in the reserve.
• Currency board always used fixed exchange rate. Here interest rate has been adjusted automatic.

Difference between are:

• Currency board is an authority where as fixed exchange rate is an instrument to control the Monetary regime
• Currency board is a Monetary authority in which it has promise to domestic currency at a fixed exchange rate where as this rate denotes Nominal exchange rate that set up by Monetary authority with respect to forgien currency.
• Currency board holds reserve of forgien currency at fixed exchange rate where as in fixed exchange rate cost of hedging of business is limited.
• Helps in controlling money supply of the country where as ensure stability in international exchange rate.
• Providing stability to the country where as value of currency has been sustained so longer.