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What is a currency board? A strict way to fix an exchange rate

By SendPay Business · · 2 min read

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A currency board is a strict form of fixed exchange rate. The local currency is tied to an anchor currency at a set rate, and every unit issued must be fully backed by reserves of that anchor currency.

How it works

  • The government sets a fixed rate against an anchor, often the US dollar or euro.
  • New local money can only be issued if matching anchor reserves come in.
  • Anyone can swap local currency for the anchor at the fixed rate.
  • The central bank gives up setting its own interest rates freely.
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Real examples

Hong Kong has linked its dollar to the US dollar through a currency board system since 1983, keeping it within a narrow band around 7.8 HK dollars to one US dollar. Bulgaria introduced a currency board in 1997, tied first to the Deutsche Mark and later to the euro.

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The trade-offs

A currency board builds trust and keeps exchange rates predictable, which helps trade. The cost is less control: interest rates largely follow the anchor country, even when local conditions need something different.

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Where SendPay fits

SendPay platforms let customers hold GBP, EUR and USD and exchange between them at a fee the platform owner sets, powered by licensed partners. SendPay doesn't offer trading.

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SendPay Business is a technology company, not a bank. Accounts, cards and payments are powered by licensed partners.

Questions people ask

Where does a pegged currency sit in its band?

See the band and what a broken peg would mean.

Currency peg calculator →
What is a currency peg?

When a country fixes its currency's value to another currency.

Currency pegs →
What is a reserve currency?

A currency central banks hold in large amounts, led by the dollar.

Reserve currencies →
What is a currency crisis?

A sudden, sharp fall in a currency's value.

Currency crises →

Read next

Spotted a mistake or something out of date? and we'll fix it. How our guides are made

This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.