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

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  • Jan-Peter Olters

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/110.

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Length: 31
Date of creation: 01 Aug 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/110

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Cited by:
  1. International Monetary Fund, 2006. "Determinants of Emigrant Deposits in Cape Verde," IMF Working Papers 06/132, International Monetary Fund.

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