Foreign Exchange Queues, Informal Traders, and a Zero Premium in the Black Market

Download or read book Foreign Exchange Queues, Informal Traders, and a Zero Premium in the Black Market written by Mr.Jan-Peter Olters and published by International Monetary Fund. This book was released on 1999-08-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.