What is the difference between currency board and dollarization?

Dollarization adopts a strong currency (not necessarily US dollars) as the country’s official currency. It can be considered as a variant of fixed exchange rate regime with an even stronger commitment mechanism than a currency board.

What does peg mean in currency?

fixed exchange rate
What Is a Currency Peg? A currency peg is a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies. Pegging a currency stabilizes the exchange rate between countries.

What is currency board arrangements?

A currency board is an extreme form of a pegged exchange rate. Management of the exchange rate and the money supply are taken away from the nation’s central bank, if it has one. In addition to a fixed exchange rate, a currency board is also generally required to maintain reserves of the underlying foreign currency.

What is the difference between central banks and currency boards?

Unlike a conventional central bank, which can print money at will, a currency board issues domestic notes and coins only when there are foreign-exchange reserves to back it. Under a strict currency- board regime, interest rates adjust automatically.

What is soft peg?

A soft peg describes the type of exchange rate regime applied to a currency to keep its value stable against a reserve currency or a basket of currencies. Currencies with a soft peg are half way between those with a fixed or hard pegged exchange rate and those with a floating exchange rate.

What are pegged with horizontal bands?

Weak version: also known as pegged exchange rates within horizontal bands. In this case, the exchange rate fluctuates more than ±1\% around the fixed central rate. Target zone arrangements can be seen as being half way between fixed and flexible exchange rates.

What is meant by crawling peg?

A crawling peg is a band of rates that a fixed-rate exchange rate currency is allowed to fluctuate. It’s a coordinated buying or selling of currency to keep the currency within range. Crawling pegs help control currency moves, usually during threats of devaluation.

What is basket peg?

The policy of pegging a currency to a portfolio of several currencies with different weightings. A country usually follows a basket peg to attach its currency to another without overexposing it to the fluctuations of a single currency. …