Currency Appreciation Research Articles

Bitcoin as a National Currency: A Case Study for the Czech Republic

In an era of changing financial landscapes, the position of cryptocurrencies like Bitcoin as possible national currencies is worth investigating. This study investigates Bitcoin's adherence to currency criteria and its consequences for GDP development in a certain country. The mining industry plays a significant role in the GDP of many countries. The extraction of raw materials such as metals, minerals, and fossil fuels is essential for producing a wide range of goods and services. This generates jobs and tax revenues and supports economic growth. Understanding these processes is critical, given the ongoing debate about Bitcoin's place in modern economies. This research looks into Bitcoin's usefulness as a currency and its possible influence on a certain country's GDP. The results show that Bitcoin fits the requirements for money, acting as a means of exchange and a store of value, with features including mobility, divisibility, commensurability, and fungibility. When examining its influence on GDP, empirical data indicate that, while currency appreciation may provide the illusion of stronger GDP growth when denominated in foreign currency, it damages growth domestically. According to a neural network study, Bitcoin's large impact on GDP renders it unsuitable for use as a national currency in the Czech Republic. Despite matching currency criteria, Bitcoin's adoption confronts problems such as volatility, a lack of central authority, and its worldwide nature, which limit its usefulness in promoting national economic growth. This analysis emphasizes country selection and length restrictions, finding that Bitcoin's existing position as an investment instrument restricts its viability as a national currency.

Exploring the Impact of Remittance and Economic Growth on Inflation

This study investigates the influence of remittance income and economic growth on the inflation rate in South Asian Association for Regional Corporation (SAARC) countries. Remittance inflows have a double effect on the economy’s inflation rate: firstly, it increases consumer spending capacity, driving up demand for goods and services, which can lead to higher prices; secondly the influx of foreign currency can cause local currency appreciation, raising import costs and contributing to inflation. While previous studies have focused primarily on how inflation hinders economic growth, this study seeks to understand how economic growth causes inflation from the other side. Economic growth boosts consumer and business spending, increasing demand for goods and services, which can increase prices. Furthermore, higher demand for resources and labor can raise production costs, further contributing to inflation. The correlation between remittance income and inflation has been extensively documented, but the impact of economic growth on inflation remains to be determined. The study is based on descriptive and exploratory research design and driven by a positivist research philosophy. The present study is based on secondary data collected from World Bank reports and the countries’ economic surveys. This study uses an unbalanced panel dataset of 272 data points from eight member countries of SAARC. Basic econometric techniques such as covariance analysis, panel unit root testing, panel autoregressive distributed lag model, and scaled coefficient analysis are employed. The remittance income is only statistically significant at the 10 percent significance level. A one percent increase in remittance income leads to a 0.284 percent increase in inflation over the long run. The growth rate of gross domestic product plays a crucial role in setting inflation. One percent rise in gross domestic product growth leads to a 0.3405 percent increase in inflation in the long term. The error correction term exhibits a negative and statistically significant relationship. The coefficient size suggested that around 65.14 percent of the disequilibrium was rectified in each cycle. The current year’s lagged gross domestic product growth negatively and statistically significantly impacts economic growth. One percent rise in gross domestic product growth led to 0.3308 percent fall in inflation in the short term across SAARC countries. The results indicate that remittance income has a minimal long-term effect on inflation in SAARC nations, whereas gross domestic product growth substantially impacts inflation. Policymakers should prioritize promoting sustainable economic growth to mitigate inflationary pressures effectively.

Variance risk premiums in emerging markets

We provide for the first time the emerging market variance risk premium (EMVRP) from 2006 to 2023, based on nine emerging stock and option markets—Brazil, China, India, South Korea, Mexico, Poland, Russia, South Africa, and Taiwan. The EMVRP significantly predicts international stock returns and currency appreciation rates, especially for horizons longer than six months. This is in sharp contrast with the predictive pattern of the developed market variance risk premium (DMVRP), which is more important over horizons shorter than six months. These findings are consistent with an illustrative model incorporating partial market integration and heterogeneous economic uncertainty.

A STUDY ON IMPACT OF FOREIGN DIRECT INVESTMENT ON BALANCE OF PAYMENTS

Foreign Direct Investment (FDI) exerts a multifaceted influence on a country's Balance of Payments (BOP), encompassing both the capital and current accounts. In the capital account, FDI inflows represent crucial long-term investments by foreign entities into domestic assets, spanning from establishing new ventures to acquiring existing businesses or funding infrastructure projects. These inflows augment the country's capital base, providing essential funding for development endeavors, particularly vital for emerging economies. Additionally, FDI facilitates technology transfer and managerial expertise, fostering innovation and enhancing productivity. Consequently, this bolsters the competitiveness of domestic industries, potentially leading to increased exports and improved trade balances. However, FDI outflows, in the form of profits, dividends, and royalties repatriated by foreign investors, impact the income account of the current BOP, constituting outflows. Furthermore, FDI's influence extends to exchange rates, where significant inflows may lead to currency appreciation, affecting trade dynamics.

Assessment of exchange rate determination in a mono-resource economy: A case of Nigeria

<p style="text-align:justify"><span style="font-size:16px"><span style="font-family:Times New Roman,Times,serif"><span dir="ltr" lang="EN-US"><span style="color:black">This study examined the determinants of the exchange rate in a mono-resource economy, during the period of currency and oil price fall in Nigeria. The aim of the study is to ascertain the potentiality of economic diversification (non-oil export) in saving the falling value of the domestic currency, as well as, its stability. The study employed the use of monthly data from the Central Bank of Nigeria and Nigeria National Petroleum Corporation from January 2008 to December 2020 using the ARDL and NARDL models to achieve the stated objectives. In the literature, several empirical studies analyzed the relationship between exchange rates, oil price, and oil export and came to the logical conclusion that a rise in the price of oil would bring about a rise in the exchange rate, all things being equal while the reverse is the case. To add to the existing body of knowledge this study did not only look at the relationship between the variables but also examined the determinants of the exchange rate in a mono-resource economy and ascertained the potentiality of economic diversification in bringing succor to the falling exchange rate in the midst of falling oil price. The NARDL result corroborates the findings of previous studies on the relationship between exchange rate, oil price, and the performance of non-oil export. It maintains that positive changes in oil prices would lead to the appreciation of domestic currency while negative changes in oil prices would lead to the depreciation of the domestic currency. With this analysis, the study recommends the diversification of the economy and revitalization of the non-oil sector. Since import proves to have a negative impact on the exchange rate, the revitalization of the non-oil sector stimulates domestic consumption and thus reduces import bills which raise the demand for the dollar and weakens the naira.</span></span></span></span></p>

ASYMMETRIC J CURVE RELATION BETWEEN TÜRKİYE AND HER EUROPEAN TRADE PARTNERS: A NARDL METHOD

This research delves into the asymmetrical impacts, both short and long term, of the real strengthening or weakening of Türkiye’s currency against that of the 28 European Union member countries, on its bilateral trade balance. The study aims to uncover potential asymmetries in the relationship between Türkiye’s currency depreciation and its trade balance with the EU 28 countries, while also considering the possibility of a J-curve effect. By utilizing the Non-Linear Autoregressive Distributed Lag Model (NARDL) introduced by Shin et al. (2013), which accounts for asymmetric relationships, the analysis examines whether Türkiye’s trade balance with her EU 28 partners reacts differently to currency appreciation and depreciation. The findings from the non-linear ARDL analysis conducted in this study lend support to the hypothesis of an asymmetrical relationship, both in the short and long term, between the real appreciation of foreign exchange rates and Türkiye’s bilateral trade balance with the EU 28 countries, potentially indicating the presence of a J-curve effect.

Financial inclusion and monetary policy targets: Evidence from the ECOWAS countries

The study examines the impact of financial inclusion on monetary policy targets in the Economic Community of West African States for the period between 2004 and 2020. To capture how a shock to financial inclusion affects monetary policy targets in the ECOWAS sub-region, the study employs panel vector autoregression via the Generalized Method of Moments framework and uses the impulse response functions. The results show that in all ECOWAS countries, financial inclusion leads to an appreciation of the local currency, thereby improving the value of the exchange rate. However, it reduces the effectiveness of monetary policy. In particular, financial inclusion increases consumer prices and interest rates. Based on the findings, the study recommends, among others, the need for a single monetary policy in the ECOWAS sub-region to properly integrate its monetary policy framework in line with the economic and monetary integration policy of the West African Monetary Zone.

Analysis of Determinants of Foreign Exchange Reserves in ASEAN-5 Countries

Foreign exchange reserves represent a nation's holdings of foreign currencies or currency equivalents, managed by its central monetary authority, and utilized in global transactions and engagements. This research aims to analyze the influence of inflation, Foreign direct investment, Exchange rate, economic growth and exports to the level of foreign exchange reserves in ASEAN-5 countries 2000-2022. This study relies on secondary data sourced from the World Bank's official website. The analytical methodology involves employing a panel data regression technique known as the Fixed Effect Model (FEM) alongside the analysis tools provided by StataMP17. The results of data processing show that partially each independent variable is inflation, Foreign direct investment, Exchange rate, Economic growth demonstrates a notable negative impact on Foreign Exchange Reserves within ASEAN-5 nations, with statistical significance. Conversely, the independent variable Exports exhibits a positive and significant correlation with Foreign Exchange Reserves across ASEAN-5 countries

Too Domestic to Fail: Liquidity Provision and National Champions

Abstract Authorities’ support policies shape the location and continuation of industrial and banking activity on their soil. Firms’ locus of activity depends on their prospect of receiving financial assistance in distress and therefore on factors such as countries’ relative resilience. We predict that global firms are global in life and national in death; and that they become less global when competition is more intense, times are turbulent, and international risk sharing (say, through swap lines) weak. We analyse the competitive benefits of industrial and banking policies as well as their limitations, such as currency appreciation.

International transmission of quantitative easing policies: Evidence from Canada

What are the cross-border spillovers from major economies' quantitative easing policies to their trading partners? We provide evidence by concentrating on spillovers from the US to Canada during the ZLB period when QE policies were actively used. We identify QE shocks in the US and estimate their impact on a large number of Canadian macroeconomic and financial variables. Then we analyze transmission channels of foreign QE shocks to the domestic economy. Our results suggest that US QE shocks are expansionary for Canada despite a currency appreciation. This is because they spill over to domestic borrowing costs, lowering long-term rates as well as financial premiums, and increasing asset prices. We find evidence for both portfolio balance and risk channels.

An Assessment of Kenyan Diplomatic Strategies in Managing Its Kenya-Somalia Maritime Border Disputes

In LDCs like Ethiopia, one of the major macroeconomic problems is the absence of effective monetary policy. The money demand function play a major role in macroeconomic analysis, especially in selecting appropriate monetary policy actions. The objective of monetary policy in the least developing countries (LDCs) is usually related to money and credit control, price stabilization and economic growth. Many LDCs considered, price stability as the most important objective of monetary polices and it is important to testing the stability of parameter of money demand function indicate the effectiveness of the conduct of monetary policy. The research to be conducted therefore is to investigate the determinants of money demand function. Based on the data, which could be found an error correction model (ECM) was applied to estimate the money demand function in Ethiopia. From the study it is found that, money demand is positively related with real GDP and it is negatively related with expected inflation. The coefficient of real effective exchange rate is positive or negative depending on the magnitude of the appreciation and depreciation of local currency. Thus the studies calls for appropriate formulation and implementation of sound monetary policy capable of bringing stability in the coomy coupled with sustainable growth. Keywords : money demand , economic growth , error correction model DOI : 10.7176/DCS/9-1-02

Effect of Currency Depreciation on Share Prices of Listed Agricultural Firms in Kenya

This paper sought to assess the effects of currency depreciation on share prices of listed Agricultural firms in Kenya in the recent past 2020- 2023. It adopted a descriptive correlational research design. The target population was all the six Agricultural companies listed at the NSE as of December 2023. Secondary data was collected from the Nairobi Securities Exchange and Central Bank for the period January 2020 and December 2023, data collected took a panel dimension thus a simple regression analysis was done to establish the extent of the relationship between variables. It is evident that the shilling has drastically depreciated against the dollar while stock prices exhibited a price increase. The paper found out that a unit change in exchange rates leads to a change in stock prices by 0.094. This means that stock prices increase by 9.49%. Thus a weak positive relationship between exchange rates and stock prices therefore exchange rates alone cannot be used to explain stock price volatility. This paper findings informs investors, portfolio managers, regulators, listed companies, financial institutions, and other market players. portfolio managers are better when they increase their positions in equity stocks when they forecast a depreciation of the foreign currency and consequently dispose of shares in their portfolio if they predict an appreciation of the foreign currency. Additionally the government of Kenya should also establish measures and policies to enhance the country’s agricultural exports as this will go a long way in improving the performance of its agricultural listed. Finally it recommends further studies on the topic since it considered only two variables; exchange rates and share prices over four years.

African exchange rates amidst the COVID-19 pandemic

<p class="MsoNormal" style="margin-top: 12pt; text-align: justify;"><span lang="EN-US" style="font-family: 'times new roman', times, serif; font-size: 14pt;">The study investigates the impact of COVID-19 on African exchange rates, employing a panel dataset over the period 2016-2022 from 13 African economies and employing pooled OLS estimator. The findings reveal a noteworthy positive correlation between COVID-19 levels and exchange rates within the region. However, this association necessitates deeper exploration due to its multifaceted implications, including economic disruptions, government interventions, global market interconnections, regional stability perceptions, and investor behavior. Economic indicators, such as GDP, inflation rate, real interest rate, and unemployment rate, significantly influence exchange rates. While GDP positively impacts exchange rates through economic growth, investor confidence, and trade strength, controlled inflation fosters investor confidence and export competitiveness, positively affecting exchange rates. Moreover, a pronounced positive impact of the real interest rate indicates economic stability, attracting investment and contributing to currency appreciation. Conversely, high unemployment negatively affects exchange rates, signaling economic weaknesses and eroding investor confidence. These findings emphasize nuanced policy responses for managing health crisis-induced economic disruptions and suggest future research directions focusing on specific country-level analyses and multifaceted factors influencing currency valuations within African economies.</span></p>

Exchange rate pass-through in small, open, commodity-exporting economies: Lessons from Canada

This paper analyses the exchange rate pass-through in small, open, commodity-exporting economies, taking Canada as a case study. I estimate it as being conditional on commodity shocks and compare the results with those of a standard approach, showing that the pass-through sign changes drastically across frameworks for consumer prices. My approach leads to a positive pass-through, thus implying a positive co-movement between exchange rate appreciation and consumer price inflation, conditional on the shocks. Conversely, standard models find a negative pass-through. I explain my findings by using the commodity-exporter characteristic of Canada and the nature of the shocks, which raise the demand for commodities. This, in turn, causes a currency appreciation and has inflationary effects domestically through higher commodity prices.

Assessing the Impact of Naira Policy Redesign on Nigeria's Economic Development

This research investigated the impact of the Naira Redesign Policy on Nigeria's Economic Development by administering structured questionnaires to 800 participants across 3 Deposit Money Banks and 3 Tertiary institutions in the South East region of Nigeria. Of these, 160 respondents, representing 20%, either did not return or submitted incomplete questionnaires. Utilizing Cluster Mean Analysis based on Likert’s Five Point Scale, the study addressed its research inquiries. Additionally, it critically reviewed existing theoretical analyses related to the subject matter. The results indicate that the Naira redesign policy did not curtail illegal activities or corruption, stabilize exchange rates, facilitate easy access to production and investment loans, prevent vote buying or monitor campaign funding, lower interest rates, or increase financial inclusion while reducing the unbanked population. However, the policy did reveal currency holdings previously outside commercial bank vaults, aided security agencies in combating banditry and ransom incidents, but contributed to low savings and investment, resulting in citizen poverty. The study recommends a necessary redesign, production, and circulation of the Naira, aligning with globally accepted Central Banking standards. This call is particularly crucial considering the lack of such an exercise by the CBN for almost two decades. Moreover, this redesign process should occur concurrently with the withdrawal of the old currency. Keywords: Naira Redesign, Likert’s Five Point, Cluster Mean Analysis, Economic Development

Inflation targeting, exchange rate and output gap in Central and Eastern European countries

This paper aims at empirical assessment of monetary policy relationships in Central and Eastern European countries (Czechia, Hungary, Poland, Romania), which practise the monetary regime of inflation targeting. Using quarterly data for the period of 2004-2019, the authors examined the relationship between the output gap, nominal and real exchange rate misalignment, consumer price inflation and the central bank policy rate, using the panel vector autoregression (PVAR) model. According to estimates, the central banks of the CEE-4 countries react with an increase of their policy rate to the output gap and inflation, as implied by the Taylor rule. At the same time, a monetary reaction to nominal (real) exchange rate misalignment is lost in the estimates for the post-crisis period of 2010-2019. An increase of the central bank rates does not seem to have unfavourable output effects, while the nominal exchange rate is likely to depreciate with three to five quarter lags. However, there is evidence of the price puzzle when monetary tightening is followed by a counterintuitive increase in the inflation rate. In full accordance with the New Keynesian framework, inflation depends on the output gap, while being expansionary in the real sector. Evidence of the exchange rate pass-through (ERPT) to inflation is mixed. This article provides insights into the average monetary policy reaction function and its macroeconomic effects in the CEE-4 countries, with the value added in that following the Taylor rule does not guarantee effectiveness in tackling inflation in the presence of the price puzzle. Based on the estimated exchange rate effects on the output gap and inflation, deliberate currency appreciation resulting from the central bank foreign exchange interventions and/or fiscal austerity measures can be helpful for such a disinflation that minimises output losses.

Changing Currency Holding Patterns during the COVID-19 Pandemic in Bangladesh

Changing Currency Holding Patterns during the COVID-19 Pandemic in Bangladesh

The Effect of Macroeconomics, Firm Size, Assets Growth, and Liquidity on Financial Distress and Hedging with Good Corporate Governance as a Moderation Variable in Manufacturing Companies Listed on the Indonesia Stock Exchange

Changes in currency exchange rates have an impact on currency appreciation and depreciation. One alternative that can help in managing risks arising from fluctuations in exchange rates is by utilizing hedging instruments. This research aimed to investigate the empirical evidence regarding the effect of macroeconomics, firm size, asset growth and liquidity on financial distress and hedging with good corporate governance as a moderation variable. The population were manufacturing companies listed on the Indonesian stock exchange and implementing hedging strategy in 2020-2022. Seventeen companies were selected as samples using purposive sampling techniques. Hypothesis testing was carried out by means of Structural Equation Model (SEM) approach based on the Partial Least Square (PLS). Among the 10 analysed hypotheses, 5 were proven to be accepted and the other 5 were rejected. The findings show the followings. The 2 exogenous variables (macroeconomics and asset growth) affected the endogenous variable (hedging), meanwhile the other 3 exogenous variables (firm size, liquidity and financial distress) did not affect it. The 3 exogenous variables (firm size, asset growth and liquidity) were proven to influence the endogenous variable (financial distress), whereas the variable of macroeconomics was not proven as such. Meanwhile, good corporate governance, as a moderation variable, did not provide full support for the causal relationship between financial distress and hedging.

Determinants of Uganda’s Debt Sustainability: The Public Debt Dynamics Model in Perspective

To investigate Uganda's debt sustainability determinants. The fundamental framework for this study is the public debt dynamics model, which looks at connections between changes in public debt and important macroeconomic factors such as real GDP, primary balance, currency rate, real interest rate, and trade openness. While acknowledging the significance of the primary variables identified by Mupunga and Le Roux, our empirical analysis of a country's debt dynamics extends beyond these factors. Additional considerations include the incorporation of controls such as the production gap and the non-interest current account balance. Tailored to Uganda's economic context, our comprehensive empirical model aims to provide a nuanced understanding of the diverse determinants influencing debt dynamics in the region. The major conclusions indicate that the Primary Balance, Real Interest Rate, and Real Effective Exchange Rate all positively and significantly affect the debt ratio, suggesting that fiscal surplus, low-interest rates, and currency appreciation are favorable to debt reduction and sustainability. The paper also finds that the debt ratio is negatively and significantly influenced by the Current Account Balance, indicating that trade surplus is beneficial for debt management. The paper further finds that the debt ratio is not significantly influenced by GDP growth, suggesting that economic growth may not have a strong effect on debt dynamics in Uganda. Given the significant impact of the "Primary Balance" on the "Debt-to-GDP ratio in the long run, policymakers should prioritize maintaining a fiscal surplus and prudent fiscal management. Implementing measures to enhance revenue generation, control government expenditures, and reduce budget deficits can contribute to reducing the debt burden and ensuring long-term debt sustainability. To keep the debt-to-GDP ratio in good shape, fiscal policies and long-term restraint are crucial.

The dark side of the boom: Dutch disease, competition with China, and technological upgrading in Colombian manufacturing

The natural resource boom of the 2000s spurred growth in income and consumption in many commodity-exporting nations. However, this paper brings together a previously unused combination of data sets from Colombia to document evidence of a downside – the currency appreciation associated with this boom led to a significant and persistent decline in R&D spending and in investment in technological upgrading by Colombian manufacturing firms. Our empirical strategy exploits differences in firms' sales across products and export destinations to create firm-specific measures of exposure to exchange rate shocks both abroad and at home. We link these new measurements of exchange rate exposure with Colombian micro data on R&D investment and technology upgrading. The key finding is that real exchange rate appreciation drives significant reductions in both firm-level R&D investment and a measure of technology upgrading that includes expenditure on capital goods, technology licensing, worker training, and other expenditures related to the adoption of new technology. Even after key commodity prices dropped significantly in the mid-2010s, inducing a substantial and long-lasting Colombian currency depreciation, investments in R&D and technology upgrading remained at subdued levels. Our estimated effects suggest that the resource boom and associated appreciation had a significant and persistent negative effect on technological development of Colombian manufacturing firm, and these conclusions remain even after careful attempts to simultaneously control for rising competition with Chinese manufacturers, which also had a negative effect on Colombian firms' technology investments, and the effects of trade liberalization at home and abroad. Similarities between Colombia and other commodity-exporters suggest that the effects documented in this paper may be widespread.