Which of the following is a drawback of the currency board system? A.

QUESTION

Which of the following is a drawback of the currency board system?

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 uncompetitive.

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.

ANSWER

B