Editing Currency board (section)

=== Features of orthodox currency boards ===
{{Foreign Exchange}}
The main qualities of an orthodox currency board are:

*  A currency board's foreign currency reserves must be sufficient to ensure that all holders of its notes and coins (and all bank creditors of a [[Reserve Account]] at the currency board) can convert them into the reserve currency (usually 110–115% of the [[monetary base]] '''M0''').
* A currency board maintains absolute, unlimited convertibility between its notes and coins and the currency against which they are pegged ('''the anchor currency'''), at a fixed rate of exchange, with no restrictions on current-account or capital-account transactions.
* A currency board only earns profit from interest on foreign reserves (less the expense of note-issuing), and does not engage in forward-exchange transactions. These foreign reserves exist (1) because local notes have been issued in exchange, or (2) because commercial banks must, by regulation, deposit a [[Reserve requirement|minimum reserve]] at the Currency Board. (1) generates a '''[[seignorage]]''' revenue. (2) is the revenue on minimum reserves (revenue of investment activities less cost of minimum reserves remuneration)
* A currency board has no discretionary powers to affect [[monetary policy]] and does not lend to the government. Governments cannot print money, and can only tax or borrow to meet their spending commitments.
* A currency board does not act as a [[lender of last resort]] to commercial banks, and does not regulate reserve requirements.
* A currency board does not attempt to manipulate interest rates by establishing a discount rate like a central bank. The peg with the foreign currency tends to keep interest rates and inflation very closely aligned to those in the country against whose currency the peg is fixed.