The Determinants of the Expansion of the Exchange Rate on The Black Market in The Maghreb

Abstract

The shadow economy has recently grown significantly in the overall national economy. In the Maghreb countries (Morocco, Algeria, Tunisia, Libya, Mauritania), the informal economy is the result of the introduction of a managed economy, which gradually forms the prerequisites for the emergence of a monetary deficit in these countries. Since the early 1990s, after the institutional changes in the market economy, a black currency exchange has taken a significant turn, which was accompanied by a large gap between the black market and official currency exchange. The relevance of this study is to determine the leverage of the exchange rate on the black market, which will determine the causes and factors of the expansion of this market. The purpose of the paper is to analyze the key determinants of determining the nature and dynamics of the black market exchange rate, as exemplified by the Maghreb countries in the context of long-term relations. The methodological support of the study includes the grouped mean group method and the Granger causality test. The author substantiates the following determinants of the shadow market exchange rate: the official exchange rate, the official real exchange rate, the differential expected rate of return, money supply, the level of reserves and prices. The study empirically confirms that the official exchange rate is the most significant variable that most influences the exchange rate in the shadow market, the official real exchange rate plays a secondary role in determining the black market exchange rate. These results are confirmed in the Granger causality test, which revealed the existence of unidirectional causality between the dependent black market exchange rate and the independent variables – the official rate, the official real currency rate, and the differential expected rate of return. Based on the conducted research, the author has identified the following recommendations for public authorities: 1) managing the shadow currency exchange market is possible in the context of adopting a complex of measures to diversify the sources of currency and implementing a monetary policy on the interest rate based on external rates; 2) the formation of a price control mechanism that will help reduce dependence on the international market. The paper focuses on the further use of the currency hedging instrument in the financial practice of the Maghreb banking system. The author emphasizes the need for the Central Bank to establish appropriate instructions for commercial banks on the organization and functioning of the interbank foreign exchange market in foreign trade operations. Keywords: currency exchange; the black market; Granger causality; heterogeneity; money supply; official course.