What are the advantages and disadvantages of currency boards over a monetary policy that uses only anexchange-rate target? (Check all thatapply.)

Advantages

Disadvantages

A.

The central bank cannot create inflation.

B.

It is a stronger commitment to a fixed exchange rate.

C.

Hedging the currency risk is easier.

D.

Foreign currency can be used with domestic currency.

A.

It limits the ability of the central bank to act as a lender of last resort.

B.

It is still subject to the threat of a speculative attack.

C.

Central banks will have to borrow foreign reserves.

D.

International capital flows are likely to decline.

What are the advantages and disadvantages of dollarization over other forms ofexchange-rate targeting?

(Check all thatapply.)

Advantages

Disadvantages

A.

There is no foreign exchange market.

B.

Prices of imports and exports are stable.

C.

There is no possibility of a speculative attack.

A.

International capital flows are likely to decline.

B.

Loss of seignorage.

C.

The banking system will be taken over by foreign banks.