Cross-border Trade and the Parallel Currency Market


Book Description

The authors of this study challenge the assumptions of the World Bank that the expansion in informal cross-border trade is a vindication of the market-liberalizing thrust of structural adjustment, and that adjustment policies have improved the effectiveness of an "independent" bourgeoisie that is emerging out of this trade as an agent of regional integration. Instead, they make the case for the adoption of what they call a "development approach" for tapping the benefits of the informal currency markets, as an alternative to the "market coercion" of structural adjustment.




Parallel Currency Markets in Developing Countries


Book Description

The paper reviews recent theoretical and empirical developments in the analysis of informal currency markets in developing countries. The basic characteristics of these markets are highlighted, and alternative analytical models to explain them are discussed. The implications for exchange rate policy —including imposition of foreign exchange restrictions, devaluation, and unification of exchange markets— in countries with a sizable parallel market are also examined.




Recognizing Reality—Unification of Official and Parallel Market Exchange Rates


Book Description

Some central banks have maintained overvalued official exchange rates, while unable to ensure that supply of foreign exchange meets legitimate demand for current account transactions at that price. A parallel exchange rate market develops, in such circumstances; and when the spread between the official and parallel rates is both substantial and sustained, price levels in the economy typically reflect the parallel market exchange rate. “Recognizing reality” by allowing economic agents to use a market clearing rate benefits economic activity without necessarily leading to more inflation. But a unified, market-clearing exchange rate will not stabilize without a supportive fiscal and monetary context. A number of country case studies are included; my thanks to Jie Ren for pulling together all the data for the country case studies, and the production of the charts.




Exchange Controls and Parallel Market Economies in Sub-Saharan Africa


Book Description

This paper provides a theoretical framework to understand the way in which exchange controls modify the behavior of the different agents in the economy, leading to the creation of a parallel market economy. It gives the necessary theoretical elements to analyze this parallel market economy and provides a simple methodology to obtain relevant quantitative information about it. Finally, the paper elaborates on some of the policy implications of the existence of a parallel market economy. The model developed shows that the parallel market activities can be explained through the optimizing behavior of exporters and importers, which determines the amount of import and export smuggling, the level of the rent-seeking activity, and the black market exchange rate that is consistent with an equilibrium position where no one has any more incentives to move from their attained position. A method to detect the presence, and assess the magnitude of the parallel market economy, as well as to explain its behavior quantitatively, is then developed and applied to the case of Ghana.




Parallel Exchange Rates in Developing Countries


Book Description

The evidence of black market exchange rate systems and their impact on macroeconomic performance is well documented in this fully researched study of the problem. The book offers policy conclusions after assessing the evidence.




Informal cross-border trade in Africa: How much? Why? And what impact?


Book Description

Informal cross-border trade (ICBT) represents a prominent phenomenon in Africa. Several studies suggest that for certain products and countries, the value of informal trade may meet or even exceed the value of formal trade. This paper provides a review of existing efforts to measure informal trade. We list 18 initiatives aimed at measuring ICBT in Africa. The paper also summarizes discussions conducted with many stakeholders in Africa between December 2016 and May 2018 regarding the measurement, the determinants, and the implications of ICBT. The methodologies used to measure ICBT in Africa differ widely, but they do confirm that informal trade in Africa is both sizeable and volatile. Both evidence on the determinants of ICBT and discussions with stakeholders suggest that policies should aim to reduce the existing costs associated with formal trade and provide positive incentives for traders and producers to move into the formal economy in order to avoid the loss of economic potential stemming from informal trade.







The Art of Currency Trading


Book Description

Now you can master the art of foreign exchange trading While most currency trading and foreign exchange books focus on international finance theory or simplistic chart-based strategies, The Art of Currency Trading is a comprehensive guide that will teach you how to profitably trade currencies in the real world. Author Brent Donnelly has been a successful interbank FX trader for more than 20 years and in this book, he shares the specific strategies and tactics he has used to profit in the forex marketplace. The book helps investors understand and master foreign exchange trading in order to achieve sustainable long-term financial success. The book builds in intensity and depth one topic at a time, starting with the basics and moving on to intermediate then advanced setups and strategies. Whether you are new to currency trading or have years of experience, The Art of Currency Trading provides the information you need to learn to trade like an expert. This much-needed guide provides: an insider’s view of what drives currency price movements; a clear explanation of how to combine macro fundamentals, technical analysis, behavioral finance and diligent risk management to trade successfully; specific techniques and setups you can use to make money trading foreign exchange; and steps you can take to better understand yourself and improve your trading psychology and discipline. Written for currency traders of all skill levels, international stock and bond investors, corporate treasurers, commodity traders, and asset managers, The Art of Currency Trading offers a comprehensive guide to foreign exchange trading written by a noted expert in the field.




Dominant Currency Paradigm: A New Model for Small Open Economies


Book Description

Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.




Annual Report on Exchange Arrangements and Exchange Restrictions 2013


Book Description

This is the 64th issue of the AREAER. It provides a description of the foreign exchange arrangements, exchange and trade systems, and capital controls of all IMF member countries. It also provides information on the operation of foreign exchange markets and controls on international trade. It describes controls on capital transactions and measures implemented in the financial sector, including prudential measures. In addition, it reports on exchange measures imposed by member countries for security reasons. A single table provides a snapshot of the exchange and trade systems of all IMF member countries. The Overview describes in detail how the general trend toward foreign exchange liberalization continued during 2012, alongside a strengthening of the financial sector regulatory framework. The AREAER is available in several formats. The Overview in print and online, and the detailed information for each of the 191 member countries and territories is included on a CD that accompanies the printed Overview and in an online database, AREAER Online. In addition to the information on the exchange and trade system of IMF member countries in 2012, AREAER Online contains historical data published in previous issues of the AREAER. It is searchable by year, country, and category of measure and allows cross country comparisons for time series.