Iceland should replace its central bank with a currency board

Research output: Working paper/PreprintWorking paper

Abstract

Since its independence in 1918, Iceland has tried a number of monetary regimes. They have all failed to provide monetary stability. Iceland is too small to conduct an independent monetary policy. What should Iceland do? We arrive at the conclusion that a currency board with the euro as the reserve currency is the best choice. A currency board delivers monetary stability through exchange rate stability. In contrast, a flexible exchange rate for Iceland serves as a chock amplifier. However, a currency board requires domestic reforms preferably before it is established to enhance price and wage flexibility as well as proper regulations of the financial system to minimize the risk of future financial crises.

Original languageEnglish
Publication statusPublished - 2018 Nov 14

Publication series

NameWorking papers
PublisherThe Knut Wicksell Centre for Financial Studies, Lund University
No.2018:5

Subject classification (UKÄ)

  • Economics

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