One Drawback of the Currency Board System Is

question 67

Multiple Choice

One drawback of the currency board system is

• A) the ease with which governments can set and manipulate interest rates acts as a limitation.
• B) higher domestic inflation rates compared to the inflation rate in the country to which the currency is pegged can make the currency noncompetitive.
• C) the currency board can issue additional domestic notes and coins even when there are no foreign exchange reserves to back it.
• D) the system is a true fixed exchange rate regime, because the domestic currency is fixed against other currencies.
• E) the system lacks commitment to convert domestic currency on demand into another currency.

---

Definitions:

Price Elasticity

An indicator of the sensitivity of demand for a product to variations in its price.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price.

Own Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that same good, reflecting consumers' sensitivity to price changes.

First Law of Demand

The principle that there is an inverse relationship between the price of a good and the quantity demanded, all else being equal.