What about China and Hong Kong, where the currencies are pegged to the dollar through a managed float and currency board system, respectively?
The Bulgarian lev is reliably linked to the euro via a currency-board system.
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One reason for this is that Hong Kong's currency-board system (see article) is forcing the former colony to confront its past financial excesses swiftly.
Not even the two-party opposition Alliance, critical as it is of unemployment, still around 13%, dares to suggest printing money (the currency-board system forbids it) as a cure.
Like any fixed exchange-rate system, a currency board offers the prospect of a stable exchange rate, which can promote both trade and investment.
Hong Kong and Argentina, which both have boards, have shown that they can withstand huge swings in investor confidence mainly because a currency board forces prudence in the banking system and encourages foreign ownership.
Are Indonesian banks any less flawed or crude than those of Bulgaria or Estonia (which had a dysfunctional banking system prior to its currency board)?
Along with the FDIC, the draft is the work of staffers at the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, and the Securities and Exchange Commission.
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Argentina, Latin America's fastest-growing economy last year, has the most rigid exchange-rate system of all, with a currency board that fixes by law the value of the peso at parity with the dollar, and thus limits the money supply to the level of foreign currency reserves.
Outsiders suspect that a chunk of the currency board's reserves are pledged to prop up the banking system.
"The fragile system cannot survive the liquidity crunch created by the currency board, " he says.
Among its reasons was that Indonesia's banking system is not as sophisticated as Hong Kong's, which has a form of currency board.
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