Question: Develop this idea: (why did Milton Friedman think this?) Either extreme: a fixed exchange rate through a currency board, but no central bank, or a

Develop this idea: (why did Milton Friedman think this?)

"Either extreme: a fixed exchange rate through a currency board, but no central bank, or a central bank plus truly floating exchange rates; either of those is a tenable arrangement. But a pegged exchange rate with a central bank is a recipe for trouble."

(Hint: a peg is a contingent commitment, and needs reserves. With no central bank, local banks can print money of they have a "USD" per home peso. In other words, 100% reserves. This is the case in HK. )

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