Currency Board Arrangement

A Currency Board Arrangement is a system where a country's central bank pegs its currency directly to a foreign currency, such as the US dollar or euro. It holds enough foreign currency reserves to convert its own currency on demand at a fixed rate. This arrangement aims to ensure exchange rate stability, reduce inflation, and foster confidence in the currency by limiting the central bank's ability to create excessive money supply. Essentially, it ties the local currency's value tightly to a stable foreign currency, providing a transparent and disciplined monetary policy framework.