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John Greenwood Chief Economist, Invesco November 2008

Iceland’s Crisis and Response: Devising an Exit Strategy. John Greenwood Chief Economist, Invesco November 2008. OUTLINE. ICELAND’S CRISIS What Went Wrong What Needs Fixing THE CHOICE OF MONETARY REGIME Floating, Managed, Fixed, or Adopt the Euro? The Optimum for Iceland

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John Greenwood Chief Economist, Invesco November 2008

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  1. Iceland’s Crisis and Response: Devising an Exit Strategy John Greenwood Chief Economist, Invesco November 2008 .

  2. OUTLINE ICELAND’S CRISIS • What Went Wrong • What Needs Fixing THE CHOICE OF MONETARY REGIME • Floating, Managed, Fixed, or Adopt the Euro? • The Optimum for Iceland FINANCIAL SUPERVISION • Act as Shock Absorber • Banks & Non-Banks

  3. Iceland’s Crisis – What went wrong? Problems with the Monetary Regime • Huge carry trade inflows 2003-06 • Excessive growth of domestic credit • Large current account deficit Problems with Financial Supervision • Private sector financial balance: deficit of over 30% of GDP • Banks’ overseas expansion excessively dependent on wholesale money market borrowings

  4. Choice of Monetary Regime • Alternative approaches to monetary stability - theory • Currency regimes in the modern world - practice • Currencies and convertibility – banknotes and their backing • How a typical currency board operates – balance sheet and operations • History & features of Hong Kong Currency Board • How has Hong Kong system worked in practice? • Summary features of a Currency Board

  5. Alternative Approaches to Monetary Stability - Theory (1) Control the Quantity of Money (2) Control the Price of Money i.e. FX Rate Quantity Control Requires: 1) Central Bank with ability to manage high-powered money. 2) Reliable forecast of required money supply for given price level and level of real GDP. Fx Rate Control Requires: 1) Willingness of Authority to supply or withdraw base money on demand 2) Guaranteed convertibility of base money at fixed price.

  6. Alternative Approaches to Monetary Arrangements - Practice Types of Exchange Rate Mechanism Fixed Exchange RatePermanent or Temporary Fix Floating Exchange Rate Clean or Dirty Float Managed Exchange Rate Formula or Discretionary Peg Central Banks Temporarily Fixed, butAdjustable Currency Boards Permanently Fixed Rates

  7. IMF Classification of Exchange Rate Arrangements Framework Countries 1. No Separate Legal Tender (Permanently Fixed Rates) 41 2. Currency Board Arrangements* (Permanently Fixed Rates) 7 3. Other Conventional Fixed Peg Arrangements (inc managed rates) (Formula) 41 4 Pegged Exchange Rates With Horizontal Bands (Formula) 5 5. Crawling Pegs (Formula or Discretionary) 6 6. Pegged Exchange Rates Within Crawling Bands (Formula or Discretionary)1 7. Managed Floating With No Pre-Announced Path for Foreign Exchange Rate (Dirty Float) 51 8. Independently Floating (Clean Float) 35 * Bosnia & Herzogovina, Brunei, Bulgaria, Djibouti, Estonia, Hong Kong, Lithuania. Source: IMF, International Financial Statistics, December 31st, 2004

  8. Practical Problems of Floating Exchange Rate Regimes for a Small, Open Economy • High degree of volatility – exchange rate, money and credit growth rates, prices, inflation etc. • How to decide appropriate money growth rate? • How to judge credit growth at banks and non-bank financial institutions? • Exposure to carry trades – what is the equilibrium exchange rate? How much deviation to accept?

  9. Iceland’s choice • Undervalued exchange rate • Capital controls • Loans from IMF, Nordics, UK etc • Pledge to keep monetary conditions tight • But what will be the exit strategy?

  10. Do Banks Lend After Bubbles Burst?Japan in the 1990s –> lending contraction Non-Japan Asia after 1998 –> slow loan growth JAPANESE COMMERCIAL LAND PRICES & BANK LENDING LEVELS BANK LENDING & MONEY GROWTH IN ASIA (AV OF HK,MY,TH,TW) %YOY 550 550 30 30 31/10/08 500 31/10/08 500 25 25 450 ASIAN FINANCIAL CRISIS 450 20 20 400 400 350 15 15 300 350 10 10 250 300 200 5 5 250 EQUITY MARKET PEAK 29 Dec 1989 150 0 0 200 100 50 150 -5 -5 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 LAND PRICES,6 BIG CITIES ASIAN COMPOSITE LENDING JAPANESE BANK LENDING(R.H.SCALE) ASIAN BROAD MONEY GROWTH Source: DATASTREAM Source: DATASTREAM

  11. 31/10/08 8 7 6 5 4 3 2 1 0 -1 -2 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 JAPANESE CPI %YOY,3MMA YIELD ON 10-YR JGB'S Inflation profile after bubbles burst: Japan in the 1990s => DeflationNJAsia after 1998 => Low-flation JAPAN: CONSUMER PRICES AFTER THE BUBBLE BURST IN 1990 ASIA: INFLATION AFTER THE BUBBLE BURST IN 1997-98 31/10/08 18 18 8 7 16 16 6 14 14 YIELD ON 10-YR JGB'S 5 12 12 Consumption Tax Imposed 4 10 10 3 8 8 2 6 6 1 4 4 0 2 2 -1 0 0 -2 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 ASIA INFLATION COMPOSITE Source: DATASTREAM Source: DATASTREAM

  12. Vulnerability to the Carry-Trade 5.5-7.5% interest 0.2% interest 0.2% interest 8% interest (Jan 2008) AUD Principal JPY Principal JPY Principal July-Nov 2008 AUD falls from JPY104 to JPY65 (-37.5%) AUD Principal Gradual appreciation Gradual depreciation Abrupt appreciation Abrupt depreciation 2004-2007 1.The Great Moderation 2. Ample liquidity 3. Currency volatility low July-Nov 2008 1. End of the business upswing 2. Liquidity tightens sharply 3. Currencies revert to PPP

  13. Vulnerability to the Carry-Trade:Portfolio inflows into Australia and Hungary AUSTRALIA: FX RESERVES & CUMULATIVE CAPITAL INFLOW DEBT SECURITIES (US$ BN) 30/10/08 HUNGARY: FX RESERVES & CUMULATIVE CAPITAL INFLOW DEBT SECURITIES (US$ BN) 30/10/08 350 350 35 35 30 30 300 300 25 25 250 250 20 20 200 200 15 15 150 150 10 10 100 100 5 5 50 50 0 0 -5 -5 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2000 2001 2002 2003 2004 2005 2006 2007 2008 CUMULATIVE P/F INFLOWS CUMULATIVE P/F INFLOWS FOREIGNEXCHANGE RESERVES FOREIGNEXCHANGE RESERVES HIGH 31 15/11/07,LOW 0 15/5/00,LAST 31 15/11/07 HIGH 324 15/8/07,LOW 4 15/2/00,LAST 317 15/11/07 HIGH 27 30/6/08,LOW 9 29/11/02,LAST 25 29/8/08 HIGH 67 31/5/07,LOW 11 31/5/00,LAST 28 29/8/08 Source: DATASTREAM Source: DATASTREAM

  14. USD/AUD & PPP 31/10/08 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.65 0.60 0.60 0.55 0.55 0.50 0.50 0.45 0.45 2000 2001 2002 2003 2004 2005 2006 2007 2008 US $ TO AUSTRALIAN $ - EXCHANGE RATE PURCHASING POWER PARITY HIGH 0.97 18/7/08,LOW 0.49 30/3/01,LAST 0.65 24/10/08 HIGH 0.65 3/1/00,LOW 0.62 1/1/04,LAST 0.63 1/7/08 Consequences of the Carry-Trade: Overvaluation of AUD & HUF HUNGARIAN FORINT/SWISS FRANC & PPP 31/10/08 1.00 140 140 0.95 160 160 0.90 0.85 180 180 0.80 0.75 200 200 0.70 220 220 240 240 260 260 2000 2001 2002 2003 2004 2005 2006 2007 2008 HUF/CHF Source: DATASTREAM PPP BASED ON CPI PPP BASED ON PPI HIGH 184.43 24/10/08,LOW 141.04 18/7/08,LAST 184.43 24/10/08 HIGH 240.35 15/5/08,LOW 158.10 14/1/00,LAST 239.07 15/8/08 Source: DATASTREAM HIGH 198.7 15/2/08,LOW 158.1 14/1/00,LAST 191.7 15/7/08

  15. Consequences of the Carry Trade:AUD & NZD External Vulnerability AUSTRALIA & NEW ZEALAND: BANKS' NET FOREIGN ASSETS (%GDP) 22/10/08 AUSTRALIA & NEW ZEALAND: CURRENT ACCOUNT DEFICITS (%GDP) 23/10/08 0 0 0 0 -1 -1 -10 -10 -2 -2 -20 -20 -3 -3 -30 -30 -4 -4 -40 -40 -5 -5 -50 -50 -6 -6 -7 -7 -60 -60 95 96 97 98 99 00 01 02 03 04 05 06 07 08 95 96 97 98 99 00 01 02 03 04 05 06 07 08 AUSTRALIA AUSTRALIA NEW ZEALAND NEW ZEALAND HIGH -1.0 15/11/01,LOW -5.2 15/11/07,LAST -5.2 15/11/07 HIGH -7.5 2/1/95,LOW -29.0 1/1/08,LAST -28.1 1/4/08 HIGH -1 15/11/01,LOW -6 15/2/06,LAST -6 15/11/07 HIGH -19 1/1/96,LOW -59 1/4/08,LAST -59 1/4/08 Source: DATASTREAM Source: DATASTREAM

  16. Consequences of the Carry-Trade: Overvaluation of TRL & ISK 30/10/08 ICELAND KRONA/USD VERSUS PPP(CPI BASED) 30/10/08 TURKEY: LIRA/USD VERSUS PPP (CPI BASED) 0.40 0.40 50 50 0.60 0.60 60 60 0.80 0.80 70 70 1.00 1.00 80 80 1.20 1.20 90 90 1.40 1.40 100 100 1.60 1.60 110 110 1.80 1.80 120 120 2.00 2.00 130 130 2.20 2.20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2000 2001 2002 2003 2004 2005 2006 2007 2008 TURKISH LIRA/US DOLLAR ICELANDIC KRONA TO US $ EXCHANGE RATE PURCHASING POWER PARITY PURCHASING POWER PARITY HIGH 119.59 24/10/08,LOW 58.62 11/3/05,LAST 119.59 24/10/08 HIGH 1.74 21/3/03,LOW 0.55 14/1/00,LAST 1.70 24/10/08 HIGH 90.00 15/9/08,LOW 71.59 15/3/00,LAST 90.00 15/9/08 HIGH 2.07 15/5/08,LOW 0.55 14/1/00,LAST 2.06 15/9/08 Source: DATASTREAM Source: DATASTREAM

  17. Asian Resilience:Lessons from the Asian Financial Crisis ASIA: BANKS' NET FOREIGN ASSETS (%GDP) 22/10/08 ASIA: CURRENT ACCOUNT BALANCES AS %GDP 23/10/08 20 20 25 25 20 20 10 10 15 15 0 0 10 10 5 5 -10 -10 0 0 -20 -20 -5 -5 -30 -30 -10 -10 -15 -15 -40 -40 95 96 97 98 99 00 01 02 03 04 05 06 07 08 95 96 97 98 99 00 01 02 03 04 05 06 07 08 KOREA THAILAND KOREA THAILAND CHINA,VISIBLE TRADE BAL CHINA, CURRENT A/C CHINA MALAYSIA MALAYSIA HIGH 12.63 1/4/98,LOW -5.65 1/1/97,LAST -0.06 1/4/08 HIGH 2.92 1/1/98,LOW -9.65 1/1/08,LAST -9.65 1/1/08 HIGH 22.99 2/7/07,LOW -5.32 1/1/04,LAST 20.03 1/7/08 HIGH 7.77 1/1/03,LOW 2.05 1/7/99,LAST 5.28 1/4/08 HIGH 5 15/5/08,LOW 1 15/5/02,LAST 5 15/5/08 HIGH 5 2/4/01,LOW -9 1/7/05,LAST -3 1/4/08 HIGH 13.82 1/1/98,LOW -12.94 1/4/05,LAST -1.46 1/4/08 HIGH 9.85 2/4/07,LOW -37.88 1/10/97,LAST 4.54 1/4/08 Source: DATASTREAM Source: DATASTREAM

  18. EASTERN EUROPE: BANKS' NET FOREIGN ASSETS (%GDP) 23/10/08 20 15 10 5 0 -5 -5 -10 -10 -15 -15 -20 -20 -25 -25 95 96 97 98 99 00 01 02 03 04 05 06 07 08 RUSSIA UKRAINE HUNGARY POLAND ROMANIA HIGH 15.6 1/1/01,LOW -22.8 2/4/07,LAST -20.1 1/4/08 HIGH -2.56 1/10/01,LOW -14.04 3/4/06,LAST -12.43 1/4/08 HIGH 3.40 1/1/01,LOW -21.23 1/1/08,LAST -18.45 1/4/08 HIGH 3.5 2/1/95,LOW -16.8 1/1/08,LAST -14.3 1/4/08 Eastern Europe’s Vulnerability EASTERN EUROPE: CURRENT ACCOUNT BALANCES AS %GDP 27/10/08 30 30 20 15 20 20 10 10 10 5 0 0 0 -10 -10 -20 -20 -30 -30 -40 -40 -50 -50 95 96 97 98 99 00 01 02 03 04 05 06 07 08 RUSSIA UKRAINE HUNGARY POLAND Source: DATASTREAM ROMANIA Source: DATASTREAM HIGH 21.58 3/1/00,LOW -3.71 1/4/98,LAST 6.02 1/4/08 HIGH -1.36 15/8/01,LOW -10.75 14/5/04,LAST -6.67 15/5/08 HIGH -1.70 3/1/00,LOW -41.30 1/10/07,LAST -27.86 1/4/08 HIGH 20.77 1/4/99,LOW -9.95 1/1/08,LAST -6.60 1/4/08

  19. BALTICS & ICELAND: CURRENT ACCOUNT BALANCES AS %GDP 27/10/08 BALTICS & ICELAND: BANKS' NET FOREIGN ASSETS (%GDP) 27/10/08 10 2.50 2.00 5 1.50 0 0 1.00 -5 -5 0.50 -10 -10 0 -15 -15 -0.50 -20 -20 -1.00 -25 -25 -1.50 -30 -30 -2.00 -2.50 -35 -35 95 96 97 98 99 00 01 02 03 04 05 06 07 08 95 96 97 98 99 00 01 02 03 04 05 06 07 08 ICELAND LATVIA ICELAND LATVIA ESTONIA ESTONIA LITHUANIA LITHUANIA HIGH 2 2/10/06,LOW -1 2/4/01,LAST 2 2/4/07 HIGH 4.62 15/8/02,LOW -34.56 15/5/08,LAST -34.56 15/5/08 HIGH 0.2 2/1/95,LOW -1.3 1/4/08,LAST -1.3 1/4/08 HIGH 4.2 15/8/95,LOW -23.9 15/2/07,LAST -10.0 15/5/08 HIGH 0.1 2/7/01,LOW -0.9 1/1/08,LAST -0.9 1/4/08 HIGH -0.06 15/8/01,LOW -18.81 15/2/08,LAST -16.76 15/5/08 HIGH 0.06 3/4/00,LOW -2.15 1/1/08,LAST -2.07 1/4/08 HIGH -1.98 15/2/00,LOW -27.23 15/11/06,LAST -15.56 15/5/08 Vulnerability of Baltic States -- Iceland a special case 10 2.50 2.00 5 1.50 1.00 0.50 0 -0.50 -1.00 -1.50 -2.00 -2.50 Source: DATASTREAM Source: DATASTREAM

  20. Currency Boards: Basic Features • Typically maintain 100% foreign exchange reserves for monetary base... • ...in order to maintain convertibility of the local currency on demandat the fixed exchange rate. • Typically do not (or cannot) conduct domestic open market operations. • Domestic monetary conditions, inflation etc determined by the balance of payments respond to conditions in the anchor currency’s economy. • SUMMARY: Currency Boards pursue passive, rule-based, non-discretionary operations.

  21. 4.5 4.5 HK$/US$ 5.0 5.0 5.5 5.5 6.0 6.0 6.5 6.5 7.0 7.0 7.5 7.5 8.0 8.0 8.5 8.5 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 HK$/US$ Exchange Rate, 1970-2001Restoration of the External Anchor from Oct 1983

  22. What are the implications of having a currency board? • Implications for interest rates? • Implications for money supply growth? • Implications for economic growth rate and business cycle? • Implications for inflation? • Implications/requirements for ability to deal with shocks? Conditions for success?

  23. 18 18 % 16 16 14 14 3-mth HK$ Interbank Rate 12 12 10 10 8 8 6 6 4 4 July 88 Sept 98 2 2 3-mth Euro$ Rate 0 0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 8 8 % 6 6 3-mth HK$ Interbank Rate 4 4 minus 3-mth Euro$ Rate 2 2 0 0 -2 -2 July 88 Sept 98 -4 -4 -6 -6 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 HK & USInterest Rates Converged under the Currency Board System

  24. US AND HONG KONG 3-MONTH INTEREST RATES 14 12 10 8 6 4 4 2 2 0 0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 HONG KONG INTERBANK OFFERED RATE - 3 MONTH (EP) US 3 MONTH INTERBANK RATE (LONDON) (MTH.AVG.) HK & USInterest Rates Converged under the Currency Board System 14 12 HONG KONG 3-M INTERBANK OFFERED RATE 10 8 6 UNITED STATES 3-M INTERBANK OFFERED RATE Source: DATASTREAM

  25. 45 45 % YoY 40 40 HK Money Supply M3 or HK$M3 35 35 October 1983 Linked Rate (Linked Series) System for HK$ 30 30 25 25 20 20 15 15 10 10 5 5 0 0 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 Hong Kong's Monetary Growth StabilizedUnder The Currency BoardSystem

  26. Hong Kong's Monetary Growth Stabilized Under The Currency BoardSystem – Until the Asian Crisis HONG KONG: HK$M3 %YOY 35 35 30 30 25 25 HK$M3 %YOY 20 20 15 15 10 10 5 5 0 0 -5 -5 82 84 86 88 90 92 94 96 98 00 02 04 06 Source: DATASTREAM 20/2/06

  27. Under Fixed Exchange Rates, HK & US Traded Goods Prices Converged – Until the Asian Crisis TRADED GOODS PRICES IN HK & US, %YOY 15 15 HK EXPORT UNIT PRICES 10 10 US PPI, FINISHED GOODS 5 5 0 0 -5 -5 -10 -10 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 HK EXPORT UNIT PRICES US PPI, FINISHED GOODS Source: DATASTREAM

  28. Under Fixed Exchange Rates, Consumer Prices (esp. Non-Traded Goods) do not Necessarily Converge HONG KONG AND US INFLATION RATES (CPI %YOY) 2/2/04 Oct 1983, HK$ Fixed 15 15 HK CPI 'A' 10 10 5 5 US CPI 0 0 -5 -5 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 HK CPI 'A' %YOY US CPI INFLATION Source: DATASTREAM

  29. 300 300 Index (84Q4=100) 250 250 200 200 150 150 100 100 50 50 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 Hong Kong: Consumer and Export Price Levels HK Consumer Price Index Or NON-TRADED GOODS PRICES HK Export Unit Value Or TRADED GOODS PRICES

  30. 15 15 % YoY 10 10 HK Productivity Growth 5 5 0 0 US Productivity Growth -5 -5 -10 -10 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 Hong Kong’s Productivity Growth Exceeded US Productivity Growth

  31. 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 80 82 84 86 88 90 92 94 96 98 '00 Hong Kong: Dramatic Structural Changes Under the Currency Board (due to Opening of China) Government Construction Industries Transport Services Wholesale, Retail and Import/Export Trades,Restaurants and Hotels Manufacturing Industries Employment by Major Sectors (%)

  32. Hong Kong’s Fiscal Prudence: Budget Surpluses the Norm HONG KONG GOVERNMENT BUDGET BALANCE AS % GDP 20/2/06 8 8 6 6 HK GOVT BUDGET BALANCE 4 4 AVERAGE 2 2 0 0 -2 -2 -4 -4 -6 -6 80 82 84 86 88 90 92 94 96 98 00 02 04 06 HK GOVT BUDGET BAL %GDP AVERAGE Source: DATASTREAM

  33. Hong Kong’s Experience Under the Currency Board from October 1983 - Summary • Exchange rate vis-a-vis US$ substantially stabilized. • Amplitude of fluctuation of monetary growth reduced. • Interest rates now track US$ rates, though there are some exceptions. • Traded goodsprice inflationconverged to US inflation. However,non-traded goodsprice inflation initially exceeded US inflation (to 1998), then fell below US inflation (due to Asian crisis). • Flexibility of the HK economy permitted large structural changes. • Fiscal Prudence: Budget Surpluses Averaged 1% of GDP. • Financial Supervision: Authorities Ensured that Banks Maintained High Capital Adequacy Ratios (to withstand interest rate and other shocks better).

  34. Refinements of the Hong Kong Currency Board • 1983-88: Credit creation was still occurring that was inconsistent with the balance of payments • SOLUTION (1988): Replace private clearing house with HSBC account at HKMA • 1997-98: Interest rates driven sharply higher due to speculation against HK$ • SOLUTION (1998): Create reserve accounts at HKMA for all banks; CU & discount window as shock absorber. • HKMA permits discounting of EFBNs (Currency Board bills & bonds) on overnight basis at penal rates (effectively lender of last resort facility acting as shock absorber). • Convertibility Undertaking sets upper and lower bands for conversion of HKD to USD and vice-versa.

  35. HKD/USD Rate and Convertibility Undertakings, 1998-2008 HK$/US$ SPOT RATE, 1997 ONWARDS 25/11/08 7.70 7.70 7.80 7.80 7.90 7.90 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 HK$/US$ SPOT RATE UPPER BAND OF CU AT 7.75 Source: DATASTREAM LOWER BAND OF CU

  36. Hong Kong After the Asian Currency Crisis (1998 onwards) Currency Board Balance Sheet Assets Liabilities Foreign Currency Securities Certificates of Indebtedness (1)Clearing Balances of Banks (2)Currency Board Bills & Bonds Net Worth Commercial Bank Balance Sheets Assets Liabilities Certificates of Indebtedness Bank Notes Issued Vault Cash Clearing Balances of Banks Deposits Loans and Investments Currency Board Bills & Bonds Foreign Assets Foreign Liabilities Net Worth

  37. Currency Boards: Conditions for Success • 100% Foreign Exchange backing of Monetary Base • Convertibility between Monetary Base and all other components of the Money Supply • Flexibility in Product & Factor Markets e.g. in all prices, wages, & economic structure • Free flow of goods, services and capital across international borders • Strong financial supervision to ensure institutional soundness, capital adequacy etc. • Fiscal prudence, esp. not too much borrowing from abroad

  38. Currency Boards and Currency Board-like Systems (as of June 2002)

  39. Conclusion – 3 options • Floating Exchange Rate -- problems for small, open economy -- carry-trade distortions -- inflation target not achieved • Fixed Exchange Rate/Currency Board -- Robust form of fixed rate -- WITH proper financial supervision -- WITH shock absorbers • Euro-isation

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