Dinosaurs Of The Currency Market System

The currency board has arisen in British Empire in a XIX-th century. After the Second World War the majority of the neogenic states have decided to replace currency boards with central bank institutes. However in 1990th the currency board has returned “from time immemorial” and became the monetary power of developing countries and the states with transitive economy. Till 2002 in the different countries of the world operate ten currency boards.

Differences from classical model:

What in general means currency board? Currency management represents the establishment emitting the notes and coins which are freely converted on a fixed rate in a foreign exchange or other reserve asset.

The modern currency board largely differs from the classical model and consequently on light there were such terms, as «quasi currency board», «the modified currency board» and «not orthodox currency board». In domestic press still quite often name “currency council”, «currency committee» or «currency chamber».

Early currency boards are anything else, except transformation of currency of mother country (more often pound sterling) in local money, did not attend.

In the modern world function of currency board have essentially extended. The political and economic landscape was changed. The countries that were using currency board are not colonies any more and ensure stability of national bank sector, a payment system and the international stream of the capital.

Reacting to changes in environment, modern currency boards resemble more to central banks, rather than to the predecessors. Without delay, the monetary authorities of developing countries have refused from the institute of central bank, many have adopted at currency board the issue and monetary circulation form. From the classical point of view, the currency board performs only one operation: converts internal money in the reserve currency under in advance stipulated exchange rate. However modern currency boards have expanded a circle of operations. Now it, besides conversion bargains, includes regulation of liquidity and crediting of bank sector.

All currency boards have obligations under the repayment of the liabilities which include not only cash, but also reserves of banks. Last enter into obligations of boards because of strategic importance of an inter-bank market and a payment system for stability of a currency regime. Unlike passive operations, active operations in the different countries are various. Not all boards have the accurate obligation to purchase the reserve currency on an official rate.

For example, in Argentina the central bank still more recently could acquire a foreign exchange on market, instead of an official rate. In Estonia the monetary base is completely ensured by reserves, however it is not known, on what rate issue should be conducted. Currency boards of these two countries legally operate in the conditions of the double exchange rate.

In Hong Kong cash is sold and purchased on an official rate whereas bank reserves are redeemed on a fixed rate, and acquired at the market price. In Bulgaria the National bank also adheres to asymmetric rates: the anchor currency is sold on an official rate, and purchased at a discount in 0.5 %.

Traditionally boards conclude bargains only with banks-residents. Differently, the official rate of exchange exists only for an inter-bank market, and in the retail market the rate of exchange is advanced by a market way.

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