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Essay / Currency Board Case Study - 1070
Estonia, then the establishment of an exchange rate fixed to the German mark (DM) on June 20, 1992, and now linked to the euro. Lithuania, influenced by Estonia's success, however, later intervened to replace the currency board-style system with a centralized bank. To manage inflation and economic decline, Bulgaria adopted a currency board that was linked to the German mark and is now linked to the euro. In Argentina, for example, the minimum rate of foreign exchange reserves is not 100 percent, as for an orthodox currency board, but 66 percent. Although the real foreign exchange reserve ratio hovers around 90 percent, the central bank's legal freedom to reduce foreign exchange reserves has sometimes created speculative attacks on the currency. Singapore had a currency board until 1973, but since then the Monetary Authority of Singapore has maintained a floating exchange rate. rate. Although the Monetary Authority of Singapore holds net foreign exchange reserves equal to approximately 100 percent of the monetary base. Advantages Disadvantages • The national currency only increases when foreign exchange reserves increase. • The monetary authority cannot use the money for public expenditure. • A currency board solves the problem of