Like any fixed exchange-rate system, a currency board offers the prospect of a stable exchange rate, which can promote both trade and investment.
The SDR was created in 1969, during the Bretton Woods fixed exchange-rate system, because of concerns that there was insufficient liquidity to support global economic activity.
In the 433 months since trading freely following 1973's demise of the Bretton Woods exchange-rate system, gold has had a 7.1% average annual return, achieved solely from six relatively brief spikes.
Though Denmark achieved a measure of stability in the 1970s by joining the European Community (now Union) and its exchange-rate system, in the other Nordic countries inflationary bubbles swelled, then burst in the late 1980s, toppling banks in Sweden, Finland and Norway.
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.
That financial crisis, in the course of which the Italian lira was ejected from Europe's pre-euro exchange-rate system (along with Britain's pound sterling) coincided with a huge political crisis, as corruption investigations brought crashing down the parties that had dominated Italian politics for the past 40 years.
The balance of payments and exchange rates were making news, and the slow break-up of the Bretton Woods fixed-exchange rate system was under way.
FORBES: Farewell to James Parthemos (Richmond Fed Research Director)
But he might not like a further corollary: under a target-zone system, responsibility for exchange-rate management, as well as for controlling inflation, has to be given to the same policymaker.
The country's current foreign-exchange system, which involves a fixed "official" exchange rate that makes the currency, the kyat, more than 100 times as valuable against the dollar as the black-market rate, is so confusing that many foreign companies have refused to re-enter the country even if Western leaders ease sanctions against Myanmar, the country also known as Burma, as expected later this year.
With the benefit of hindsight, most economists have been critical of the August 2001 deal for Argentina, which simply postponed rather than prevented the collapse of the exchange-rate peg with the dollar and, with it, the country's banking system.
If a second-rate exchange is first to attract a critical mass of trading, even a better trading system may fail to wrest business away.
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