When this occurs, it is only a matter of time before currency speculators spot the contradictions between exchange-rate and monetary policies and force a devaluation. It is also exactly what happened last summer in Thailand and in the other Asian countries with pegged exchange rates. Table 1 summarizes the main characteristics and results anticipated with floating, fixed, and pegged exchange rates. Yes a Floating rates are employed in most developed countries. The Proof of the Pudding Is in the Eating Base money is the purview of monetary authorities, either central banks or currency boards.
Central banks have broad latitude to create base money.
Currency boards do not have that flexibility. An orthodox currency board cannot create credit. Therefore, it cannot extend credit to the fiscal authorities or act as a lender of last resort to the banking system. Table 2 presents the characteristics of currency boards and contrasts them with those of central banks. The first currency board was established in 1849, and beginning about 1913, that system spread rapidly throughout most parts of the world.