The Money Supply in Currency Boards

How does a currency board obtain monetary equilibrium? This paper provides an in-depth analysis of the money supply in currency boards in order to review their monetary stability. After many years of neglect by economists and policymakers, currency boards enjoyed a revival in the 1990s. Although no new currency boards have been established since 1997, economists continue to consider them from time to time as a possibility for monetary reform in some countries. This paper hypothesizes that there are certain circumstances under which a currency board maintains monetary equilibrium while an unorthodox currency board may not. By taking a balance sheet model approach, one can make more definitive conclusions about the workings and efficacy of various currency boards.