Theoretical and policy aspects of dual exchange rate systems

1986

This paper examines the viability of dual exchange-rate regimes. Typically, under such a regime the exchange rates applicable to current-account (commercial) transactions and to capital-account (financial) transactions differ from each other. This difference may be determined in the free market if the authorities peg the commercial exchange rate and set a binding quota on external borrowing, or it may result from direct pegging of both exchange rates. The analysis starts with a specification of the characteristics of the distortion introduced by the exchange-rate premium (that is, the percentage discrepancy between the financial and the commercial exchange rates), and then provides explicit formula for the equilibrium premium, for its evolution over time and for the welfare cost induced by the distortion. The paper outlines the set of policy options consistent with sustaining a permanently viable dual exchangerate system and highlights the severe constraints that intertemporal solvency requirements of the private sector and of the government impose on the long-run viability of the regime. The paper concludes with an analysis of the monetary changes associated with dual exchange-rate policies and draws the implications of such a regime for the intertemporal distribution of taxes and for the intergenerational distribution of welfare

2000

1999

American Economic Review, 2000

The authors examine the determinants of the parallel exchange rate for a cross-country sample of developing countries. The sample includes countries in which the parallel exchange rate is official (dual exchange rate systems) as well as those in which it is unofficial (black market). They base their empirical analysis on a portfolio macroeconomic model in which the parallel exchange rate is determined by expectations and equilibrium asset considerations in the short run, but depends on the evolution of key policy variables (such as stock of money, budget deficits, and trade policy) in the long run. The results indicate that macroeconomic variables explain more than 70 percent of the variation in the spread between the official and parallel exchange rates. The authors cannot reject the hypothesis that there are no differences in the determinants of the spread when the parallel rate is official and unofficial. Also, they cannot reject the hypothesis that restrictions on the capital ac...

ЗБОРНИК РАДОВА ЕКОНОМСКОГ ФАКУЛТЕТА У ИСТОЧНОМ САРАЈЕВУ, 2014

Exchange rate of one currency is the price of the currency expressed in units of other currency. It is formed by the interaction of supply and demand in the foreign exchange market. Given that the exchange rate has a direct impact on the competitiveness of a country in terms of features of its exports and imports, in its balance of payments, and indirectly the overall economic and social development, in addition to acting in market principles-supply and demand in the formation of the equilibrium exchange rate, exchange rate is subject to different, stronger or weaker, more or less, forms of intervention. In the search for the optimal exchange rate policy of the national currency, the monetary authorities are positioned between the two extremes-the complete abandonment of the exchange rate to the market laws of supply and demand, or fixing the exchange rate for any of the selected anchor currency.

International Journal of Forecasting, 1988

PSL Quarterly Review, 2002

European Bank for Reconstruction and Development 09-06-2002 * Willem Buiter is Chief Economist of the European Bank for Reconstruction and Development. Clemens Grafe is Principal Economist at the EBRD. The views and opinions expressed are those of the authors. They do not necessarily represent the views and opinions of the European Bank for Reconstruction and Development. This is an abbreviated version of the paper was prepared for the 10 th Anniversary Conference of the European Bank for Reconstruction and Development on December 13 and 14 in London, UK. Useful comments from Leszek Balcerowicz, Ron McKinnon and Zdenek Tuma are gratefully acknowledged.

In this study we are going to find out the impact of exchange rate system on foreign trade of a country. In this study we will see how foreign exchange volatility impact on a country's Import-Export Policy. We are going to see how India changed to fixed exchange rate to flexible exchange rate in year 1993. International experience has shown that the transition from a fixed to a floating exchange rate regime has unambiguously been accompanied by a rise in exchange rate volatility. We also discussed about how all industrialized countries changed their fixed exchange system to flexible exchange System after collapse of the Bretton Woods arrangements. We also discussed India's experience since 1960's. We also talked about Black Market Exchange Rates and Purchasing Power Parity in Emerging Economies. Exchange rate is simply the rate at which one currency is converted into another. Meaning of foreign exchange rate: The price of one currency in terms of another is known as foreign exchange rate. It is the rate at which one unit of a foreign currency is exchanged for domestic currency. e.g. if one unit of US dollar can be got by paying Rs. 40, then foreign exchange rate is 1$= Rs. 40, it is also sometimes called as external value of currency. There are various concepts of exchange rate systems. Its two important types are Fixed Exchanged Rate and Flexible Exchanged Rate.

2011

Abstract: This paper provides a selective survey of the incidence, causes, and consequences of a country's choice of its exchange rate regime. I begin with a critical review of Michael Klein and Jay C. Shambaugh's (2010) book Exchange Rate Regimes in the Modern Era, and then proceed to provide an alternative overview of what the economics profession knows and needs to know about exchange rate regimes.