Currency board system

Currency board system (also translated as currency board system, banknote board system, currency board mechanism and currency board arrangement) is a strict exchange rate system. Under this system, a country firmly pegs the exchange rate of its currency to another currency, such as the dollar or the euro. The currency board system ensures that the country's banknotes and coins can be completely converted into pegged currencies at a fixed exchange rate. Because of this guarantee, the currency board system cannot issue banknotes and coins that exceed the equivalent of its foreign exchange reserves. Therefore, the operation of the currency board system is passive and mechanized. This system can prevent the government from printing money to finance its activities and avoid inflation. Hong Kong's linked exchange rate is a currency board system. The exchange rate of the Hong Kong dollar is pegged to the US dollar, which is 1 US dollar to HK$ 65,438+0 and 1 US dollar to HK$ 7.8.

It has two basic principles: first, the exchange rate of domestic currency is pegged to a foreign currency as a benchmark; Second, the currency guarantee issued is fully supported by foreign exchange reserves.

The system itself is to match supply with currency reserves. If foreign exchange reserves are too large, there will be too much relative to domestic currency issuance, which will easily lead to asset bubbles or inflation.

/Ye Qi/