Financial Crises in Currency Board Systems

In recent years economists have done much work assembling information on episodes of financial crisis. In particular, Carmen Reinhart and Kenneth Rogoff’s 2009 book This Time is Different elevated the study of the issue to a new level by combining a wide-ranging survey with intensive data collection.

Because the subject is so large, work remains to be done on it. Miloni Madan and Alec Maki, two undergraduates at Johns Hopkins University, have made a useful contribution with a just-issued working paper that for the first time examines all currently known financial crises that have occurred in currency board systems. Madan and Maki wrote the paper for a class offered by CFS Special Counselor Steve Hanke. The working paper is from the Johns Hopkins Institute for Applied Economics, Global Health, and Study of Business Enterprise, which Hanke co-directs and which has a link to the CFS. Because of my interest in monetary history, I read the paper in draft and offered comments on it as it developed into an ambitious project.

Madan and Maki bring to light a few financial crises not previously discussed by economists who have gathered cross-country data. There may be other episodes yet to be uncovered relating to currency boards, but it seems unlikely there will be many other important ones. Given how widespread currency boards have been historically, it is remarkable how few crises currency board systems have experienced. Crises have been concentrated in Argentina, Hong Kong, and Eastern Europe.

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About Kurt Schuler

Kurt Schuler, co-editor of The Bretton Woods Transcripts, is Senior Fellow of Financial History at the Center for Financial Stability and an economist in the Office of International Affairs at the United States Department of the Treasury.

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