Exchange Rate Unification Research Articles

Nigeria Exchange Rate: Towards Nigeria’s Exchange Rate Convergence to Pre-Buhari Years

This paper explores the trajectory of Nigeria’s exchange rate policies, examining their evolution and impacts on the Naira’s value. From the fixed exchange rate era to the recent Unified Exchange Rate System, the study dissects historical shifts and their repercussions on the economy. The Nigerian exchange rate regime has gone through different eras from 1970s till date. Various factors necessitated the need for exchange rate policy changes; however, the result of the policy changes have over the years been eroded and its value has been on a continuous decline. Key factors contributing to the Naira’s persistent decline, including import dependency, reduced oil production, and inflation, are scrutinized. The role of currency speculation and the impact of government policies are also analyzed. The paper recommends short-term measures, such as adjusting exchange rate policies and lifting import restrictions, and long-term solutions, including infrastructure development and sectoral growth. The government should monitor the behavior of the exchange rate market closely and ensure interventions using both fiscal and monetary policies are implemented to fortify Nigeria’s economic resilience and counter the continuous depreciation of the Naira. Keywords: Exchange Rate, Exchange rate regime, globalization, fiscal policy.

Bread and the dilemmas of socialist paternalism in Israel, 1948–1977

This is the first study of bread regulation in a post-World War II democratic country. Under Israel's Labor Socialist regime, bread was mostly privately supplied. In setting prices, policymakers faced tradeoffs between producer profits/viability of small-scale producers and consumer welfare, and between producer profits and minimizing inflation and real appreciation. Subsidization entailed a tradeoff between producer profits and consumer welfare on one hand, and fiscal responsibility and exchange rate unification on the other hand. We study the regulatory changes that took place as the industry structure evolved, and document the changes that occurred in the revealed weights of producer profits, consumer welfare, fiscal responsibility and exchange rate unification. Over 1952–1977, regulatory reforms accelerated the process of technologically-based rationalization, and policy was strongly pro-consumer. This process did not unfold smoothly: Regulatory changes occurred in four phases, with (sometimes) sharp fluctuations in consumer welfare, producer profits, fiscal policy and exchange rate policy.

Financial intermediaries and speculation in the foreign exchange market: the role of monetary policy in Iran’s economy

Given the high fluctuations of the general price level, the importance of investment, and accessing sufficient financial resources, we examine the effects of monetary policy on the nominal (Inflation) and real (Investment) sectors of a developing economy, like Iran, through the channel of the relationship between bank deposits, stock market, and speculation in the foreign exchange market (FEM). For this purpose, due to regime switching in Iran’s economy, the non-linear relation between the variables has been investigated by applying Markov switching models and annual data of 1988–2018. The results show that the financial intermediaries (FIs) have not had a complementary relationship in both bear and bull market and high and low banks deposits regimes. Both FIs have negatively impacted speculation in the FEM in high and low exchange rates difference regimes. The difference between official and unofficial exchange rates negatively impacted the FIs in bear market and low banks deposits regimes; on the contrary, a positive effect in a bull market and high bank deposits. The effects of both FIs on investment have been positive in high and low investment regimes and negative on inflation rates in high and very high inflation regimes. In comparison, the impact of speculation in the FEM has been negative on investment and positive on inflation. Therefore, in the event of the lack of limitations regarding using interest rate (IR) and the policy of exchange rate unification, the central bank would be able to affect the nominal and real sectors of the economy suitably through the channels of the FIs and the FEM.

Moderating Effect of Exchange Rate on the Relationship Between Firm Characteristics and Financial Stability of Commercial Banks in Kenya

The study sought to determine the moderating effect of exchange rate on the relationship between firm characteristics and financial stability of commercial banks in Kenya. The study sought to establish the effect of exchange rate on financial stability of commercial banks in Kenya. The study further sought to determine the effect of firm characteristics as a composite index on financial stability of commercial banks in Kenya. Positivism research philosophy was employed. Causal research design was utilized in this study. The study targeted 17 commercial banks from which secondary data was collected from the published financial reports for the study period between 2011 and 2018. Generalized method of moments (GMM) model guided by dynamic Panel regression analysis was utilized. Data analysis was run on the Stata 13 package and findings presented in tables while deriving conclusions and recommendations from the study findings. The study found out that exchange rate had a significant moderating effect on the relationship between firm characteristics and financial stability (β= 0.422519, p= 0.095) of commercial banks in Kenya. The study also found out that firm characteristics as a composite index had a significant negative effect on financial stability (β= -1.006024, p= 0.063) of commercial banks in Kenya. The coefficient of exchange rate at (β= 0.0177881, p=0.000) shows a statistically significant positive effect on financial stability of commercial banks. To deal with issues of exchange rate fluctuations, the study recommends that commercial banks in Kenya should adopt a unified exchange rate. The study further recommends that commercial banks should focus on streamlining their internal firm characteristics in order to ensure financial stability is achieved collectively since they are associated with variability in the exchange rate. Keywords: Moderating Effect, Exchange Rate, Firm Characteristics, Financial Stability. DOI: 10.7176/EJBM/12-25-07 Publication date: September 30 th 2020

Alternative Monetary Policy Regimes With Multiple Currency Practices

We assess how non-orthodox monetary policy of an economy with multiple currency practices impacts growth and development. The central bank employs two monetary instruments: i) adjustment of the official exchange rate and ii) adjustment of nominal monetary base growth to stabilize the economy through minimizing the inflation and output gaps. A third instrument, intervention in the foreign exchange market, is used to control the exchange rate gap. The main message of this paper is that with a persistent external shock, the MPCs are effective at best in the short-run; while it hurts long-term growth. To reduce the adverse impacts on development, we suggest using the producer price index (PPI) in the monetary instruments instead of the consumer price index (CPI). We find that the PPI results in lower welfare losses. We then show that even under a unified exchange rate regime, the PPI targeting considerably performs better. Finally, we indicate that monetary instruments are more effective in the presence of a fiscal rule.

GRAVITATY POTENTIAL FOR CURRENCY ALLIANCES’ INTRARIGIONAL TRADE

The paper develops the concept of regional monetary integration, the framework of which includes three alternative exchange rate arrangements: currency board, full or parallel dollarization and currency union. Each of them has its own peculiarities of formation and development, its own advantages and disadvantages, but the common feature is unconditional exchange rate unification. The concept of currency proto-integration was introduced, which foresees the exchange of information on monetary initiatives between monetary authorities, consideration of counterparties’ interests to minimize risks or maximize common benefits in the field of monetary relations.In order to assess the effectiveness of monetary integration for the development of intra-regional trade flows, we use gravity modeling based on a sample of more than 105 thousand observations of bilateral trade flows within monetary integrational and proto-integrational alliances. Gravity model includes the parameters of the volumes of bilateral trade, gross domestic product, weighted distances between states and the system of dummy-variables for the determination of monetary associations, common language and borders between trading states. The applied gravity model demonstrates a fairly high level of certainty for South America, Europe, South and East Asia (R2 for them was 0.71, 0.63 and 0.54, respectively). It was established that among the monetary alliances, the integrational and proto-integrational structures of South America, Asia and Europe were most effective in the aspect of intensifying intraregional trade. Between the African monetary blocks, the regular growth of mutual trade was observed only in the West African Economic and Monetary Union, while the rest was characterized by reverse dependence.

Effectiveness of Trade and Exchange Rate Policies on Exporting Garden Products: Evidences from Iran

The current research intends to study the effectiveness of trade and exchange rate policies on exporting garden products in Iran. For the policies on exchange rate, the instability of the exchange rate and the dummy variable of exchange rate unification were considered in relation to trade policies, trade diversion and economic openness. To do so, the short term and long term relation between the variables of the export supply logarithmic function was determined according to ARDL model and the error correction model. The data was collected from the international trade database, the statistics of the agriculture ministry and the central bank’s site for 1997-2015. The results showed that, for long term, such variables as trade diversion, exchange rate instability, economic openness, export value of the stone fruits during previous years and the dummy variable of exchange rate unification were positively influencing on exporting Iran’s stone fruits. The value of error correction factor was estimated as -0.42 which is significant and indicates a more highly increased adjustment for long term equilibrium. Also, when a shock or diversion from equilibrium occurs, 0.58 of the short term imbalances are adjusted to reach the long term equilibrium.

A study on the effects of exchange rate and foreign policies on Iranians dates export

The main purpose of this research was studying the impact of exchange rate on date export as one of the most important and greatest foreign currency income earned horticultural products in agriculture sector in Iran. Selected time period in this study was chosen between 1991 and 2011. For this purpose, ordinary least squares (OLS) method has used to estimate the relationships between the value of date export and the variables taken from stationary tests. Library research method has used for the analysis. In this regard, required data have collected from various scientific and research resources. The results indicated that, exchange rate is a crucial factor for dates export and also for exporters. In addition, other factors specially government policies have been placed in export model. In this field, short-term outsourcing foreign policy has decreased the export value. Results also showed that, applying exchange rate unification policy without an appropriate exchange rate to encourage exporters has negative impact on dates export. Therefore, by applying exchange rate stabilization policy, according to inflation in the country, the potential exporters’ income has reduced and production costs have increased alternately.

Is the Eurozone Not a Monetary Union, But an Extraordinary Exchange Rate Union?

The Target imbalances within the Eurozone can be interpreted as a sign of a missing balance of payments adjustment mechanism for the member countries. As the Eurozone lacks a fiscal union, in economic theory it is more an exchange rate union or a system of fixed exchange rates than a monetary union. In the latter, there would not be any national balances of payments, but only one for the whole Eurozone. This paper will show why the Target System is a crucial indicator for the Eurozone not being a monetary union, but an exchange rate union and why countries holding Target liabilities against the European System of Central Banks can be compared to a reserve currency country, e.g. like the US during the Bretton-Woods-System.

International Monetary System: The Desired Direction of Changes

The collapse of the international monetary system of Bretton Woods ended the period of common use of unified exchange rate system. Current, so-called non-system, is not providing stability in currency relations, which is mainly due to the high volatility of exchange rates. Implementing changes is inevitable. While the unification of exchange rates on an international scale appears to be currently impossible, alike the return to the gold standard, noteworthy is the idea of implementing a global currency, which would be an effective replacement for the US dollar as an international currency. SDRs, based on the rearranged currency basket that include the currencies of developing countries, could successfully play the role of such currency.

Modelling the Eurozone as an Extraordinary Exchange Rate Union

The Trans-European Automated Real-Time Gross settlement Express Transfer system (TARGET) imbalances within the Eurozone can be interpreted as a sign of a missing balance of payments adjustment mechanism for the member countries. As the Eurozone lacks a fiscal union, in theory it is more of an exchange rate union or a system of fixed exchange rates than a monetary union. This paper will show why the TARGET is a crucial indicator for the Eurozone not being a monetary union but instead an exchange rate union, and why countries holding TARGET liabilities against the European System of Central Banks can be compared to a reserve currency country, like the US under the Bretton-Woods System.

Exchange Rate Unification: The Cuban Case

This paper reviews from an international perspective the challenges faced by Cuba in unifying its exchange rate and compares various options to meet this objective. It argues in favor of a fast unification approach but cushioned during a pre-announced transition period by lump-sum taxes and subsidies applied on an enterprise-by-enterprise basis. By allowing for relative price changes to operate in full from the start, the immediate unification would maximize efficiency gains. At the same time, by cushioning the Cuban economy from potentially large transitional pains — including fiscal revenue losses, productive dislocations, inflationary outbursts and distributional effects — the lump-sum taxes and subsidies (to be gradually phased out) would ease the transition, thereby boosting policy credibility. However, to ensure the viability of the scheme and the rapid materialization of the efficiency gains, important habilitating reforms would be needed, particularly as regard the governance of state enterprises.

Indian Falling Rupee Impacting Foreign Education

The volatility of foreign exchange rate is a characteristic feature of flexible exchange rate regime initiated in early 1970s. After independence, in a paradigm shift in exchange rate regimes, the Indian rupee changed path from par value system to basket-pegged system. It was closed in 1991 and, for one year, India followed a dual exchange rate system through Liberalized Exchange Rate Management System (LERMS) which replaced the pegged exchange rate regime in March 1992 leading ultimately to unified exchange rate system in March 1993. It was an important step towards current account convertibility which was finally achieved in August 1994. But a widely recognized fact is that the power and greed politics of Wall Street over the years led to the development of unfettered stock and forex markets which are never self-correcting. J.M. Keynes long back believed and advocated that markets left to their own measure could be destructive leading to cycles of recessions, depressions and booms. The continuously falling Indian rupee against US dollar has been adversely affecting the Indian economy, particularly the students studying in USA, UK, Canada, and Australia etc. In USA, Indian student’s population is largest, next only to China.

Exchange Rate Unification: The Cuban Case

Exchange Rate Unification: The Cuban Case

On securing a common monetary policy in Europe

The work looks at the EEC’s integration, and specifically the evolution from a pseudo exchange-rate union to full monetary integration and the technical actions of coordinating the actions of national central banks. First the monetary impact of international payments imbalances is assessed. The discount mechanism and partial sterilisation is then considered. Finally, the author looks at restricting the scope of open-market operations.

THE BLACK-MARKET EXCHANGE RATE VERSUS THE OFFICIAL RATE: WHICH RATE FOSTERS THE ADJUSTMENT SPEED IN THE MONETARIST MODEL?

Many less developed countries have currency controls, which can lead to black-market trade and cause distortions in the exchange market. We test the flexible-price monetary model for 25 less developed countries, using both official and black-market exchange rates. We find that the model is supported in the long run, particularly when black-market rates are used. Measuring the speed of convergence to equilibrium, we find that it is often higher in the black-market specification, implying greater efficiency. This could offer justification for exchange-rate unification, particularly in Latin America.

Impacts of world prices transmission to domestic rice markets in rural Iran

This paper attempts to assess the degree to which Iranian rural households have responded to the change in price of imported rice due to exchange-rate unification, and to examine the extent to which the policy has affected the economic welfare of various household income groups, particularly the poor. Utilizing samples of 2472 households selected from national expenditure survey data of 2002 and 2003, Armington and pass-through elasticities were calculated as two measures of substitutability, and are discussed separately for each household group in these areas. The findings of this study indicate that domestic rice prices are associated differently with imported rice prices among the households. However, a price increase in imported rice that is mainly consumed by the poor worsens their position much more severely than for the rich people who mainly prefer domestic rice. The findings contribute to the understanding of how price changes resulting from trade liberalization may affect various groups of households and the ways they respond to such changes in prices.

Economic Reform and Democratization in Argentina and Uruguay: The Tortoise and the Hare Revisited?

mplementing market-oriented reforms is often a contentious affair, especially in new democracies. It can be time-consuming when the democratic process permits many opportunities to examine (and to block) controversial proposals. Conversely, when debate is limited by various means, the pursuit of can undermine the democratic regime. How, then, can market-oriented reforms and democracy be consolidated simultaneously? Comparing the extent of economic in Argentina and in Uruguay over the past ten years, it is hard to argue that Uruguay has made more visible progress. While both nations have engaged in dramatic trade liberalization, Argentina has achieved more deregulation, more privatization, and more rationalization of public administration. Uruguay, in contrast, has witnessed the reversal of government-led state campaigns in the legislature and in referendums. The contrast between the two countries recalls the old fable of the tortoise and the hare. Is it possible that Uruguay's failure to move quickly on state will improve its prospects for eventually consolidating democracy and economic reform? Or is the Argentine reform first strategy more useful? These questions serve as the point of departure for an investigation of the politics of economic and democratic consolidation in new democracies. In discussing these processes, a few definitions are in order. Marketoriented refers to structural adjustment policies designed to increase the role of internal and external market forces. This diverse package has been dubbed the Washington Consensus (Williamson 1990). It includes fiscal discipline; shifting public spending priorities away from defense, general administration, and untargeted subsidies and toward health, education, and infrastructure; tax reform; financial market liberalization; a unified exchange rate; trade liberalization; equal treatment for foreign direct investment; privatization of state-owned enterprises; deregulation of the economy; and secure property rights for all citizens. Democracy is a political regime characterized by competitive elections, a variety of channels for citizen participation, and protection of civil and political liberties sufficient to safeguard the two other characteristics (Dahl

A Currency Union or an Exchange Rate Union: Evidence from Northeast Asia

This paper examines whether or not Northeast Asia economies, namely, China, Japan, Korea, and Taiwan, can form a currency union, where a single currency and a uniform monetary policy are adopted, or an exchange rate union where all the currencies are pegged to an internal or external currency or an optimum currency basket. The analysis of correlations of supply shocks, exchange rate shocks, monetary shocks, and demand shocks, which are estimated applying the structural VAR model with identification restrictions imposed, to the data for the period from 1970 through 2004, shows that shocks of these economies are not symmetric, in general, implying that the Northeast Asian economies are not ready yet to form a common currency union. However, it is found that the Northeast Asian countries can form an exchange rate union with a major currency basket, which consists of the U.S. dollar, the euro and the Japanese yen, as an anchor currency. The paper also examines the option of pegging to a basket of regional currencies, similar to the Asian Currency Unit (ACU), and discusses policy implications.

A Currency Union or an Exchange Rate Union: Evidence from Northeast Asia

This paper examines whether or not Northeast Asia economies, namely, China, Japan, Korea, and Taiwan, can form a currency union, where a single currency and a uniform monetary policy are adopted, or an exchange rate union where all the currencies are pegged to an internal or external currency or an optimum currency basket. The analysis of correlations of supply shocks, exchange rate shocks, monetary shocks, and demand shocks, which are estimated applying the structural VAR model with identification restrictions imposed, to the data for the period from 1970 through 2004, shows that shocks of these economies are not symmetric, in general, implying that the Northeast Asian economies are not ready yet to form a common currency union. However, it is found that the Northeast Asian countries can form an exchange rate union with a major currency basket, which consists of the U.S. dollar, the euro and the Japanese yen, as an anchor currency. The paper also examines the option of pegging to a basket of regional currencies, similar to the Asian Currency Unit (ACU), and discusses policy implications.