Foreign Exchange Queues, Informal Traders, and a Zero Premium in the Black Market: A Cape Verdean Puzzle
Electronic Access:
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Summary:
During 1996–98, several indicators hinted at the apparent unsustainability of Cape Verde’s exchange rate peg. The country, faced with a considerable backlog of approved but unmet applications for foreign currencies, tolerated a parallel market. Street traders, however, demanded only negligible premiums (if any at all) for foreign exchange. By integrating the emigrants’ transfer decisions into a basic Mundell-Fleming-type model, the author conjectures that this puzzle can be explained with the increasing use of transfer channels outside the banking system, leading to unrecorded inflows of foreign exchange. Analysis of the relevant balance of payments data appears to support this result.
Series:
Working Paper No. 1999/110
Subject:
Conventional peg Currencies Currency markets Economic sectors Financial markets Foreign exchange Informal economy International reserves Money
English
Publication Date:
August 1, 1999
ISBN/ISSN:
9781451853322/1018-5941
Stock No:
WPIEA1101999
Pages:
31
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