Answer: Flexible domestic prices and wages.

**Explanation:** - **Option A (Correct):** A currency board system operates most effectively when domestic prices and wages are highly flexible. This flexibility allows the economy to adjust smoothly to external shocks without requiring changes in the exchange rate. - **Option B (Incorrect):** A currency board system is best supported by a slow and steady growth in the supply of the global reserve asset, consistent with long-term real growth and price stability. Rapid growth in the reserve asset supply can undermine the system's stability. - **Option C (Incorrect):** A currency board system functions optimally when the non-traded sectors of the domestic economy are relatively small. Large non-traded sectors can complicate the adjustment mechanisms required for the system to work effectively. This question assesses understanding of exchange rate regimes and their impact on international trade and capital flows.

Author: LeetQuiz Editorial Team