•  There were three main reasons for the choice of a currency board for BH’s monetary policy: (a)  It provided a firm nominal anchor in the form of a fixed exchange rate in a situation where there was significant economic instability;  (b)  It removed discretion in a situation where there was considerable difficulty in establishing institutions and making political decisions;  (c)  Currency boards had been established in some other eastern European countries and were working well.
The currency board •  The three essential features of the BH currency board are: (a)  A fixed exchange rate specified in the law;  (b)  Full foreign exchange backing for all the KM liabilities of the central bank;  (c)  Full convertibility of the CBBH’s KM liabilities into the anchor currency.