MGCR 382 Lecture Notes - Lecture 10: Seigniorage, Money Supply, Monetary Base
30 Jan 2017
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Imf classification: hard pegs, countries that have given up their own sovereignty over monetary policy, soft pegs. A nation"s choice as to which currency regime to follow reflects national priorities about all facets of the economy. Inflation, unemployment, interest rate levels, trade balances and economic growth. The choice between fixed and flexible rates may change over time as priorities change. Need for central banks to maintain large quantities of hard currencies and gold to defend the fixed rate. Fixed rates can be maintained at rates that are inconsistent with economic fundamentals. Currency boards- exist when a country"s central bank commits to back its monetary base, money supply, entirely with foreign reserves at all times. A unit of the domestic currency cannot be introduced into the economy without an additional unit of foreign exchange reserves being obtained first. Dollarization-- use of the us as the official currency of the country.
