A: Currency board means that the exchange rate between domestic currency and a foreign convertible currency is fixed by law, and special restrictions are imposed on the issuance of domestic currency to ensure the implementation of this legal exchange rate system. It usually requires that currency issuance must take a certain (usually 100%) foreign currency as a reserve, and this reserve requirement must always be met in currency circulation. The monetary authority in this system is called the currency board, not the central bank.

Currency board system is a special case of fixed exchange rate system, or rather, it is an extreme fixed exchange rate system. The domestic currency is not only linked to foreign currency in exchange rate, but also depends on the amount of foreign currency available. As long as the monetary authorities issue money according to the rules, the currency exchange rate can theoretically remain stable; Moreover, when the market exchange rate deviates from the official exchange rate level, taking the rise of local currency as an example, note-issuing banks can convert local currency into foreign currency in the foreign exchange market, and then convert foreign currency into local currency at the official exchange rate level to profit from it. This process will devalue the local currency in the foreign exchange market and restore the exchange rate to the official exchange rate level.

Under the currency board system, the monetary authorities have lost the initiative to issue currency, but they can effectively restrain government expenditure and prevent artificial inflation.