The real problem with currency boards, it seems to me, is that they don't really insulate the country from international finance. Rather, they are a concession to international finance. Countries set up currency boards because they are unwilling (or unable) to regulate capital flows. Argentina has conceded that finance is calling the shots and that, without the promise of a stable currency, Argentina doesn't have a prayer of getting money out of the international financial institutions. So they have agreed to hand over economic policy.
Now some countries like the idea of a currency board because it lets them
deal
directly with the private banks and bypass the IMF. Suharto was very keen
on currency
boards after the crisis. He preferred to destroy the Indonesian economy
utterly rather
than let the IMF break up the Suharto family holdings.
>
T
>he price is high, and one of the ironies of Hong Kong was that the
>currency board was imposed by the imperial administration. However, it
>built up a pool of government assets which at a crucial turning point in
>the crisis of 1998 allowed Hong Kong to defeat the currency speculators.
Which raises yet another problem. When governments set up currency boards and other fiixed-rate devices - and when there are no real restrictions on capital inflows and outflows - then the government has pledged public assets to defend the rate. When the government actually spends down the assets to ward off speculators, should this be seen as a "defeat" for the speculators? After all, who is walking away with the assets?
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