Currency Boards for Developing Countries: A Handbook

By Steve H. Hanke & Kurt Schuler


The Johns Hopkins University, USA. 

Center for Financial Stability New York, USA.


The International Center for Economic Growth, through its offshoot ICS Press, published the original version of this study in 1994. With their permission, we posted a slightly updated version on the Internet in 2000. We thank them again in connection with this edition, which updates a few references to events but is not a comprehensive revision. We are working on a forthcoming, larger book about currency boards with Nicholas Krus that will summarize our quarter-century or more of thinking on the subject.
This book has had a substantial influence. It has been translated into Bulgarian, French, Spanish, Turkish, and Georgian. A modified version, adapted to the specific circumstances of Lithuania, influenced that country’s monetary reform of 1994 (Hanke & Schuler 1994b). Both an unauthorized and an authorized Bulgarian translation were widely read during the high inflation that preceded Bulgaria’s adoption of currency board-like rules in 1997 (Hanke & Schuler 1996, 1997). Most recently, the book has been published in Farsi by the Majlis (Parliament) Research Center of Iran and in Arabic by the Lebanese Institute for Market Studies in Tripoli, Lebanon.



Chapter 1
The case for currency boards
Currency board versus central bank
Currency boards versus dollarization, multinational
central banks, and free banking
Currency boards and wider economic reforms
Outline of this study

Chapter 2
The case against typical central banks
The functions of money
Stability and credibility
Credibility and exchange rates
Convertibility and foreign-exchange controls
Central banking and deficit finance
Political independence: an unattainable goal
Inadequate staff
Flexibility: a problem even in theory

Chapter 3
Currency boards, central banks, and the money supply 
Money supply in a currency board system
Money supply in a central banking system
Central banks sometimes mistaken for currency boards
A brief history and assessment of currency boards
Currency boards and currency board-like systems today

Chapter 4
How to establish a currency board 
How to convert a central bank into a currency board
The alternative: a parallel currency approach
How to establish the currency board as the issuer of a parallel currency
How to choose a reserve currency
How to calculate the initial foreign reserves
How to obtain the initial foreign reserves 1

Chapter 5
How to operate and protect a currency board 
How to operate a currency board
How to protect a currency board
How to change the reserve currency, if necessary

Chapter 6
Objections to currency boards

No lender of last resort
Does size matter?
Fixed versus floating exchange rates
The inflation tax
The cost of reserves
The worst case

Chapter 7

Appendix: A model currency board constitution


About the Editor

Dr. Steve H. Hanke is a Professor of Applied Economics and Founder & Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. He is a Senior Fellow and Director of the Troubled Currencies Project at the Cato Institute in Washington, D.C., a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing, a Special Counselor to the Center for Financial Stability in New York, a contributing editor at Central Banking in London,anda contributor at National Review. Prof. Hanke is also a member of the Charter Council of the Society of Economic Measurement and of Euromoney Country Risk’s Experts Panel. In addition, Prof. Hanke serves as a member of the Board of Directors of the United States National Board for Education Sciences.

In the past, Prof. Hanke taught economics at the Colorado School of Mines and at the University of California, Berkeley. He served as a Member of the Governor’s Council of Economic Advisers in Maryland in 1976-77, as a Senior Economist on President Reagan’s Council of Economic Advisers in 1981-82, and as a Senior Advisor to the Joint Economic Committee of the U.S. Congress in 1984-88. Prof. Hanke served as a State Counselor to both the Republic of Lithuania in 1994-96 and the Republic of Montenegro in 1999-2003. He was also an Advisor to the Presidents of Bulgaria in 1997-2002, Venezuela in 1995-96, and Indonesia in 1998. He played an important role in establishing new currency regimes in Argentina, Estonia, Bulgaria, Bosnia-Herzegovina, Ecuador, Lithuania, and Montenegro. Prof. Hanke has also held senior appointments in the governments of many other countries, including Albania, Kazakhstan, the United Arab Emirates, and Yugoslavia.

Dr. Kurt Schuler is an economist in the Office of International Affairs of the U.S. Department of the Treasury. In his spare time, he is Senior Fellow in Financial History at the Center for Financial Stability in New York. This book reflects his own views only. His most recent book is Just Before Bretton Woods: The Atlantic City Conference, June 1944 (with Gabrielle Canning, 2019).



Date of Publication

December 1, 2021

File Size: 2139 KB
Length: xiii + 156 pages

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