Relationship between Exchange Rate and the Current Account of the Balance of Payments: A Study in Oil Countries Selected

Abstract

The exchange rate is the pillar that links domestic and foreign monetary transactions. The exchange rate affects many variables of the economy, and it also affects the market for goods and services. Its rise can lose the competitive advantage of export energy, and consequently the loss of the economic surplus in the production sectors. The hypothesis of the study that the exchange rate adversely affects the current account of the balance of payments, which leads to the economy losing the opportunity cost of the recovery of the local economy. The problem of the study is that the stability of the exchange systems in the oil countries weakens the market mechanisms, and thus the possibility of market forces to reach a state of equilibrium in the long term, and that the inverse relationship between the exchange rate and the current account will expose the local economy to great damage. The aim of the study is to measure the impact of the exchange rate on the current account in some oil countries. The study sample countries (Malaysia, Egypt and Iraq), the study period (2005-2018), the study concluded that the effect of the exchange rate on the current account was inverse in all countries, but the effect was stronger in Malaysia, and the study recommended taking into account the conditions of the real economy, and support the system Flexible exchange because of its advantages in the local markets.