Dual exchange rates : theory, insulation properties and the South African experience

Galloway, D W

Dual exchange rates : theory, insulation properties and the South African experience

Master Thesis

1990

Publisher

University of Cape Town

Department

School of Economics

Faculty

Faculty of Commerce

Abstract

Dual exchange rate regimes are not a phenomenon peculiar only to South Africa. In the past they have been implemented by the BLEU, France, Italy and the Netherlands in one form or another. More recently, multiple exchange regimes have been adopted by other developing countries such as Mexico, Brazil, Venezuela and Argentina. The rationale for imposing a two- or multi-tier exchange regime is to protect the balance of payments from volatile short-term capital flows due to political and economic uncertainty inherent in developing economies. The focus of this paper is on the insulation properties of dual market systems against foreign shocks. These shocks may take the form of foreign interest rate increases or increases in foreign perceptions of risk. An implication of these insulation properties is that the monetary authorities are able to pursue a monetary policy independent of external constraints.

Description

Includes bibliographies.

Keywords

Foreign Exchange

Reference:

Collections

Masters

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