"In the beginning God created sterling and the franc. On the second day He created the currency board and, Lo, money was well managed." — Prof. Peter B. Kenen (Princeton)

Since the dawn of Keynesian economics, governments in emerging markets have insisted on their competence and ability to control monetary policy and fine tune the economy. However, the monetary and currency landscapes are littered with failure. Professor Hanke's approach to this conundrum is based on one simple principle: a rules-based monetary system. He has dedicated much of his life's work to promoting and advising administrations on currency boards (and their close cousin “dollarization”).

What Is a Currency Board?

A currency board has no discretionary monetary powers and cannot issue credit. It has an exchange-rate policy but no monetary policy. Its sole function is to exchange the domestic currency it issues for an anchor currency at a fixed rate. A currency board’s currency is a clone of its anchor currency. Hanke often likens them to a "monetary straitjacket" that prevents the central bank from financing government debt and thereby increasing the broad money supply. The fixed exchange rate mechanism helps anchor expectations and reduce the risk of speculative attacks on the currency.

The earliest currency boards were established in the mid-nineteenth century in British colonies to provide monetary stability and facilitate trade. These boards backed their currencies almost entirely with gold or silver coins. The Mauritius Currency Board, created in 1848, was the first, issuing local notes that were fully convertible into sterling with reserves held in precious metals.

An orthodox currency board must have these characteristics:

• Fixed exchange rate with a foreign anchor currency
• Full convertibility guaranteed at all times
• Foreign reserves sufficient to cover the entire monetary base (Bennett, 1994)

The Track Record: 170+ Years of Success

The historical record of currency boards is unambiguous. Over 170 years and across dozens of countries — from British colonial Africa and Asia to post-Soviet Eastern Europe to war-torn Bosnia — currency boards have delivered monetary stability with a reliability that no central bank can match.

The key insight from Hanke and Schuler's comprehensive survey of all 70+ currency boards in history is structural: a genuine currency board cannot be successfully attacked because it holds 100% reserves and has no discretionary monetary policy to subvert. Speculators have nothing to attack. Every currency board that failed, failed because it was not orthodox — it had been quietly converted into a pseudo-currency board with discretionary features. The orthodox boards survived everything.

What happens when governments reject currency boards in favor of central banks? The Hanke Inflation Dashboard tracks the answer in real time: chronic currency depreciation, elevated inflation, and periodic crises across dozens of countries.

Currency Boards versus Central Banks

Steve Hanke: The Money Doctor

Professor Hanke is widely known for diagnosing and resolving currency collapses across emerging and crisis-stricken economies. Throughout his career, he has advised governments in Argentina, Bulgaria, Ecuador, Estonia, Lithuania, and many more. His approach centers on creating currency boards or stabilizing monetary institutions to restore credibility, halt inflation, and eliminate the distortions that push people into unofficial markets.

Learn more about the case against central banks

Hanke's Advocacy for Gold-Based Currency Boards

A central pillar of Hanke's policy work is the advocacy for currency boards, especially those backed by gold. A currency board is a strict, rules-based monetary authority that issues domestic currency 100% backed by a foreign reserve asset or gold at a legally fixed exchange rate. It operates without discretionary monetary policy, creating an automatic constraint on money creation.

Hanke argues that for countries suffering from chronic high inflation and currency instability (such as Turkey or Iran), a gold-backed currency board offers a powerful solution. By anchoring the national currency directly to gold, the system imports immediate credibility and discipline, halting inflationary finance.

He notes that historically, currency boards have a perfect record of never failing. A gold-backed version provides a neutral, non-sovereign anchor, insulating the country from the monetary policies of other nations and from what Hanke terms the "chaotic non-system" of the current fiat global order.

Proposed Gold-Backed Currency Board Designs

Iran: Hanke has proposed a currency board for Iran backed by gold reserves. Iran holds substantial gold reserves that could serve as the anchor for a new currency, breaking the cycle of hyperinflation and currency collapse that has plagued the country under sanctions.

Turkey: Hanke has proposed a gold-backed currency board for Turkey as an alternative to the Turkish lira's chronic instability. Turkey holds significant gold reserves (both official and in private hands), making a gold-backed board particularly feasible.

Both proposals reflect Hanke's view that gold provides a neutral, non-political monetary anchor — one that cannot be manipulated by governments or subject to the monetary policy decisions of foreign central banks.

Country Case Studies

• Bulgaria — Currency board established in 1997 to end hyperinflation
• Estonia — Monetary reform and currency board launched in 1992
• Lithuania — Currency board implemented in 1994
• Bosnia — Post-war currency board under the Dayton Accords
• Argentina — The Convertibility Law and its lessons
• Hong Kong — The Original Template — The currency board that inspired Hanke's entire research program
• Indonesia — The Crisis of 1998 — The currency board that was never implemented, and the crisis that followed
• Russia — Blueprint for Reform — The 1993 blueprint and the 1998 ruble collapse Hanke predicted

Explore This Topic

• The Case Against Central Banks
• Evidence on Currency Boards

Recent Publications (2025–2026)

• Implementation of Dollarization & Currency Boards — Working Paper, Johns Hopkins IAE

Related Topics

• Monetarism — The theoretical foundation for monetary discipline
• Hyperinflation — What happens when monetary institutions fail
• Dollarization — An alternative to currency boards
• Free Market Economics — The broader framework
• Policy & Advisory Work — Hanke's advisory roles implementing currency boards worldwide
• Biography & Life — The life and career of Professor Steve H. Hanke