Foreign Exchange Queues, Informal Traders, and a Zero Premium in the Black Market: A Cape Verdean Puzzle

August 1, 1999

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Jan-Peter Olters. Foreign Exchange Queues, Informal Traders, and a Zero Premium in the Black Market: A Cape Verdean Puzzle, (USA: International Monetary Fund, 1999) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Conventional peg, Currencies, Currency markets, Economic sectors, Financial markets, Foreign exchange, Informal economy, International reserves, Money

Keywords: Aggregate demand, Balance of payments, Black markets, Cash transfer, Conventional peg, Currencies, Currency markets, Exchange rate, Foreign currency, Foreign exchange queue, Foreign exchange queues, Informal economy, Open economy, Unrequited transfers, Western Europe, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/110
Stock No:

WPIEA1101999
ISBN:

9781451853322
ISSN:

1018-5941

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