The Case For Currency Substitution In Venezuela


If an independent central bank is off the table, Venezuela might opt, instead, for a currency board. A currency board is required, by law, to exchange local currency—in this case, the bolívar—for some foreign currency at a fixed rate and to hold 100% foreign currency reserves to meet that requirement. First, the fixed rate a currency board could support might be much higher than the administration is willing to admit. Second, although the currency board is legally required to hold 100% reserves, nothing technically limits it from over-issuing. The Kobayashi Maru of monetary policy, currency substitution recognizes that the only way to win the game is not to play at all.


Source:   Forbes
January 11, 2017 17:17 UTC






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