THE LOGIC OF THE CURRENCY BOARD MONETARY REGIME

Year 2010, Volume: 1 Issue: 1, 72 - 86, 01.04.2010

Momtchil Karpuzanov

Abstract

The Currency Board (CB) is a particular monetary regime combining legally
set fixed exchange rate and full coverage of domestic currency by highly liquid holdings
in a stable reserve currency with an explicit relinquishment of active monetary policy by
national monetary authorities aiming at enhancing and making this commitment more
credible. It exhibits the theoretical functioning of an automatic mechanism linking the
performances of the domestic economy as represented by the balance of pay men ts
dynamics providing reserve currency to the Currency Board and the money supply
dynamics based on it. In the short-run such a political decision largely contributes to
stabilisation policies and exhibits significantly positive results in fighting injlation,
rejlating economic activity and setting hard budget constraints to all economic agents.
Although it is often related as the hardest of all pegs, it is argued here that it is but a
mere monetary substitution of external to domestic currency thus breaking the necessary
or even vital link provided by the monetary procedure, as a relation between the
monetary product and the economic behaviour of economic agents. Therefore the CB
introduces a relative-price distortion through a continuous real exchange rate
appreciation. It consists therefore in hiding and postponing economic troubles amplified
by the necessity of an exit strategy towards discretionary managed monetary policy by
the Central Bank or dollarization / euroization and total dependence on foreign
discretionary monetary policy. 

Keywords

Currency Board, monetary procedure, hard peg exchange rate, relative price system distortion

THE LOGIC OF THE CURRENCY BOARD MONETARY REGIME

Abstract

Para Kurulu yasal olarak sabitlenmiş bir kur ve ulusal paraya tam kapsama
getiren bir para rejimidir. Tam kapsama güçlü bir rezerv para birimi cinsinden yüksek
miktarda likidite bulundurulması ve ulusal otoritenin aktif para politika uygulamalarını
terk etmesini içerir. Bununla amaçlanan güvenilirliği arttırmaktır. Para kurulu
ödemeler dengesi dinamikleri ile ifade edilen ulusal ekonominin performansının teorik
işleyişini göstermektedir. Kısa vadede para kurulu ekonomik dengeleme politikaları,
enjlasyonla mücadele, ekonomiyi canlandırma ve sıkı bütçe uygulamaları konularında
katkı sağlamaktadır. Para kurulu dövizin ulusal para ile ikamesini ifade etmekte ve en
zor kur çapalardan (peg) birisi olarak kabul edilmektedir. Böylelikle, para kurulu uygulamaları, parasal prosedürler aracılığı ile parasal ürünler ve ekonomik ajanların
rasyonel davranışları arasında sağlanan hayati bağı koparmış, engellemiş olur. Sonuç
olarak para kurulu sürekli reel kur artışları aracılığıyla bağıl fiyat bozulması (distortion)
sağlar. Para kurulu, merkez bankalarının para politikaları sonucunda gizlenen veya
ötelenerek ileride daha büyük finansal sorunları veya "dolarlaştırma / avrolaştırma"
nedeniyle yabancı para politikalarına bağımlı hale gelmeyi engeller.

Keywords

Currency Board, monetary procedure, hard peg exchange rate, relative price system distortion

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