| Currency Board Regime existed for eleven years in Argentina from the implement of the 1991 Convertibility Law to the collapse of Currency Board Arrangements in 2002. During the prophase of the 1990s, Currency Board Regime brought into important play in depressing inflation and stabilizing macroeconomic situation. However, this regime emerged more and more rigidity in disposing of domestic economic depression and avoiding the impact of a series of monetary and financial crises in emerging market economies during the anaphase of the 1990s.This paper analyzes the Currency Board Regime' s characters, macroeconomic policy effectiveness, advantages and disadvantages, existent conditions, disorganized mechanism in turns applying the method of combining theory with demonstration. At last, the enlightenment sums up the above and gives some good suggestions to the developing countries.As for characters, first, the monetary authority must adopt absolutely fixed exchange rate and ensure the exchange rate' s stability. So the monetary authority don't make use of exchange rate as a means to adjust the balance of payments and also unable to use interest and money supply to cope with domestic macroeconomic problems. Second, basic money issue must base on corresponding foreign currency reserves. Thus, the monetary authority cannot issue too much money, domestic liquidities increase only when the foreign exchange reserves increased and the monetary authority loses the function of the lender of last resort (LLR) in domestic credit. Third, domestic currency and foreign currency exchange freely and domestic and foreign currency assets are perfect substitute. Central Bank buys into and averages foreign exchange assets according to the fixed exchange rate unconditionally. Forth, capital regulations are abolished , as a result, capital flows freely. So, the nature of Currency Board Regime may be expressed four main statements as follows: absolutely fixed exchange rate, convertibility, free capital flows and basic money being equal to foreign exchange reserves.Subsequently, this paper demonstrates theoretically macroeconomic policy effectiveness in this regime and analyzes the Currency Board Regime' s advantages and disadvantages to Argentine economic development in demonstration . Depressing inflation, restricting fiscal deficit, promoting government credit standing and accelerating capital inflows are this regime' s advantages. Unable disposing of deflation, real exchange rate appreciating, interest ascending and fiscal policy getting into a dilemma are this regime' sdisadvantages.Further, this paper probes into Currency Board Regime' s existent conditions. There are four main points. First, the monetary authority must hold enough foreign exchange assets. On the one hand, ample foreign exchange reserves meet the need of convertibility in foreign exchange market , on the other hand, the domestic currency credit standing and good market expectation benefit from ample international reserves. Second, anticipated market exchange rate must keep pace with official exchange rate, which based on good macroeconomic basic factors and harmonious macroeconomic policies. Good macroeconomic basic factors may ensure to acquire ample international reserves, consequently, on the one hand, domestic money supply also increases, this economy is full of liquidity, on the other hand, national credit standing improves. As a result of absolutely fixed exchange rate and convertibility, Central Bank loses the power of the independent monetary policy . So, the monetary authority must harmonize the domestic other economic policies with the fixed exchange rate. Third, real exchange rate is relatively stable. Forth, the country must keep high economic integration with the pegged .Based on above-mentioned theoretical framework, this paper studies the disorganized mechanism and material economic factors of Currency Board Regime. Basic logic may be described as follows: durative worsen macroeconomic basic factors and inappropriate macroeconomic polic... |
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