During World War II, millions of soldiers were captured and sent to prisoner-of-

Question

During World War II, millions of soldiers were captured and sent to prisoner-of-war (POW) camps. Prisoners began to use cigarettes as a common currency.

A simple system of exchange with standardized prices developed. Tins of food could be bought for a set quantity of cigarettes, soap for another quantity.

There was a fairly stable supply. Cigarettes came into the camps in shipments of food and other supplies from the Red Cross, a humanitarian agency, and were distributed among the prisoners.

Sometimes, though, there would be a sudden influx of cigarettes—say, if the Red Cross managed to send an extra shipment one week. Soldiers, flush with cigarettes, would go on spending sprees. Soldiers would outbid each other to get the things they wanted, sending prices skyrocketing. Soldiers would then need a lot more cigarettes to buy a bar of soap. If the Red Cross missed a few shipments, though, there would be a steady decrease in the number of cigarettes in circulation, since prisoners smoked them too. Prices would plummet and overall economic activity would fall as trading slowed to a halt.
Who played the role of the central bank?

Explanation / Answer

The Central bank is the one that controls the money supply in today's economy. Here, Cigarettes are used as money and The Red Cross controls the supply of the same. Therefore, the Red Cross plays the role of the Central Bank.

OPTION D

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