Foreign Exchange Policy Research Articles

МІСЦЕ ВАЛЮТНОГО РЕГУЛЮВАННЯ В УПРАВЛІННІ ВАЛЮТНИМИ ВІДНОСИНАМИ

Досліджено сутність і структуру процесу управління валютними відносинами. Визначено взаємозв’язок між валютною політикою, регулюванням і контролем. Для обґрунтування місця валютного регулювання в управлінні валютними відносинами розроблено і досліджено його систему.

Tolerance of Flexibility: Foreign Exchange Intervention and Managed Floating Redux

In recent decades, there has been a rising share of countries with limited exchange rate flexibility (Ilzetzki et al., 2019), and foreign exchange (FX) intervention is commonly used among emerging market economies. Yet, the positive and normative implications of central banks' FX intervention and managed floating regime remain largely unexplored. Focusing on the case of China, we provide new empirical patterns of China's exchange rate policy after the global financial crisis. We find strong evidence that the central bank's FX intervention policy is nonlinear: it intervenes in heavily when the RMB exchange rate deviates from its long run trend by a large margin and otherwise it keeps inactive. Further, the central bank responds asymmetrically toward exchange rate depreciation and appreciation, with a higher tolerance for depreciation. To assess the policy effects of managed floating, we build a dynamic stochastic general equilibrium (DSGE) model embedded with an occasional binding constraint on the exchange rate. Compared to a fully floating exchange rate regime, FX intervention leads to a higher volatility in major variables on facing a foreign interest rate shock. Moreover, the exchange rate deviation constraint binds longer when the capital restriction is removed, which indicates that capital controls and FX policies are complements in terms of restricting exchange rate fluctuations.

The effect trade and exchange rate policies on the export of stone fruit in Iran

This study aims to investigate the effect of foreign exchange rate and trade policies on crop exports in Iran. Regarding foreign exchange policies, the exchange rate volatility index and the dummy variable of currency uniformity policy were considered, while economic openness index as well as the trade bias coefficient index was studied for business policies. Logarithmic model of export supply function based on the ARDL and error correction model were used to estimate long- and short-term relations between variables. The research data were collected from the websites of the International Trade Statistics Database and the Central Bank of Iran from 1997 to 2014. The results showed that variables of commercial deviation coefficient, real exchange rate, economic openness, domestic product price, stone fruits export value in previous years and the dummy variable of currency uniformity policy all had a positive effect, in the long term, on Iranian stone fruits export. The coefficient for error correction model equals -0.42, which is quite significant indicating a very high modulation pace to a long-term equilibrium. In addition, the results revealed that, in the event of shock and distortion in balance in each period, 0.58% of the short-term imbalance has been adjusted to achieve long-term equilibrium.JEL Classification: Q17, Q18, F13, F17, F39

Applying analytical support in foreign exchange policy as a basis for efficient enterprise management )

Applying analytical support in foreign exchange policy as a basis for efficient enterprise management )

Currency regulation in Russian banking system

The liberalization of currency regulation in the 1990–2000s was «partial». To date, significant restrictions remain regarding the requirements of the law on the procedure for performing currency operations and the prohibitive nature of the activities of Russian business. Control mechanisms do not allow to achieve macroeconomic targets for the stability of the ruble. The authors state that there is a need for reform in this area. The monetary policy plays an important role in regulating the market economy. It is a set of measures implemented in the sphere of international monetary and economic relations in accordance with the current and strategic plans of the country. The monetary policy of Russia is aimed at ensuring stability of its currency and domestic foreign exchange market as factors of development of the national economy and international economic cooperation. This policy is implemented by including foreign currency denominated obligations in currency regulation. One of the means of implementing foreign exchange policy is currency regulation, which is understood as «a set of purposeful actions of the state to form or change existing public relations on currency values through the application of legal and economic measures of influence». The principle of state responsibility for national security and development of the national economy is a unique principle for the Russian legal system. This should be a constitutional principle common to all branches of the Russian law. The article analyzes to what extent the principles of legal security may influence the legal regime of currency control in the Russian banking system.

Monetary Union and Bilateral Trade among CFA Franc Zone Member Countries: An Empirical Analysis

This paper examines the trade promoting effects of monetary union in the context of the CFA franc zone. Using the gravity model as a basis for predicting the volume of trade between countries, the study attempts to estimate the potential for increased trade within the CFA franc zone. The study shows that the CFA countries have experienced relatively low monetary growth, relatively strict budgetary disciplines, and consistently low inflation. However, the results of the study indicate that monetary union in the case of the CFA franc zone did not promote economic integration among member countries in the form of expanded trade. The actual trade among these countries remained small despite the use of common foreign exchange policy and free transferability of resources among these countries.

FOREX Performance And Bank Profitability: An Evaluation of PNB FOREX Branch

Banks form an essential backbone of the economy. In this era of globalization foreign trade form a significant functional priority of the bank. India faces stiff competition in the global market and to continue in the race it needs to strengthen its banking system. Punjab National Bank (PNB) is one of the leading banks which have flown its branches to various small parts of the country. As so it is an essential bank of India, and therefore there is an utmost need to have an insight into the foreign exchange of PNB. This study reveals various loopholes in the foreign exchange policy of PNB Varanasi like 98.5% percent of foreign exchange business from one party only, the dissatisfaction of customers, merging of foreign Exchange and general banking, lack of yearly financial reports and many more. Based on the finding positive recommendation has been suggested to improve the foreign exchange status of PNB which if followed can enhance the functionality of its foreign exchange, and it can stand as an essential backbone in the Indian economy.

Exchange market pressure and primary commodity – exporting emerging markets

ABSTRACTThis paper studies short-term sensitivity between exchange market pressure and various domestic and external factors in primary commodity-exporting emerging markets. The paper focuses on the top country-commodity groups in sugar, cereal, fuels, ores and coffee during the pre-peak and post-peak commodity price periods across floating and pegged exchange rate regimes, using the price of crude oil as a general benchmark. Employing a panel model and panel VAR analysis, the paper finds the heterogeneity of response patterns unique to country-commodity groups and exchange rate regimes. According to the results, in flexible regimes, volatility occurs via the foreign exchange market, interest rates, and domestic credit cycles, feeding into the social costs for structurally weaker economies. Hard exchange-rate pegs often result in a drain on international reserves as the terms of trade deteriorate following post-price peaks, leading to unpopular depreciation. These results accentuate concerns over uneven international trade patterns, an open economy’s short-term foreign exchange policy, and speculative capital flows. Such sensitivity has broad implications for macroeconomic balance and the sustainability of implied exchange rate targets in the presence of a foreign exchange constraint across emerging markets.

Foreign exchange intervention revisited: A new way of estimating censored models

AbstractIn this paper, we investigate a long‐standing issue in the international finance literature: namely, how to capture the behaviour of central banks when deciding foreign exchange policies. Essentially, the main empirical problem is that a researcher observes numerous large‐scale purchases of foreign currency but a general absence of sales. This asymmetry has motivated the use of heavily dependent parametric models. We take a fresh look at this problem by allowing for a more flexible estimation, robust to various model specifications. Our results indicate that our method outperforms some of the standard models used to date. Hence, our main contribution is to provide policymakers with an improved and readily accessible toolkit to evaluate their actions. To shed some light on this, we estimate policy functions for the cases of Turkey and Colombia and highlight marked differences with the related literature.

Accessing Impacts of Banks and Financial Institutions Act in the Development of Financial Sector

The main objective behind the establishment of Nepal Rastra Bank in 1956, as per the then Nepal Rastra Bank Act, 2012 B.S. (Now Nepal Rastra Bank Act, 1955), was to maintain macro-economic stability, by adopting sound and effective monetary, foreign exchange and financial sector policies. Institutional Development and Legal Development are the main underlying components to achieve the objectives of macroeconomic stability along with the development of Regulatory Authority and market mechanism subject to Institutional Development.
 Ministry of Finance, Nepal Rastra Bank, Securities Board of Nepal, Insurance Board, etc. form Regulatory Authorities whereas banks and financial institutions, securities brokers, merchant bankers, insurance companies form the Market Mechanism.
 This article, does not give much attention to institutional development, aims mainly to emphasize on the impacts of legal input in the development of financial sectors of Nepal, especially, the promotion of Banks and Financial Institutions and its impacts in the financial sector and the impacts of Banks and Financial Institutions Act (BAFIA) in the development of Banks and Financial Institutions, respectively.
 The history of modern banking in Nepal is yet to complete 100 years as it is evident from the establishment of Nepal Bank Limited in 1937. Prior to the establishment of Nepal Bank Limited, limited amount of bank transactions used to be done by Tejarath Adda which was established in 1880. Tejarath Adda did not collect deposit but it used to disburse loan. However, it did not provide loan to general people, rather it used to provide loan to government employees and land-lords only. Nevertheless, the government had provided loan to general people through Tejarath Adda to build house after the great earthquake of 1934.
 The modern banking history of Nepal commenced after the establishment of Nepal Bank Limited in 1937. Subsequently, Nepal Industrial Development Corporation, Agricultural Development Bank, Rastriya Bannijjya Bank, Nepal Arab Bank Limited, Nepal Indosuez Bank Limited (which later became Nepal Investment Bank Limited), Nepal Grindlays Bank Limited (which later became Standard Chartered Bank Nepal Limited), Himalayan Bank Limited, and the youngest bank Mega Bank Limited have been established in series. Now, Nepal Rastra Bank has stopped licensing process of Banks and Financial Institutions except Infrastructure Bank.

Renminbi exchange rate assessment and competitors' exports: New perspective

The currency assessment of China's Renminbi (RMB) has attracted much attention due to its growing impacts and spillover effects toward the world economy. This paper examines the impacts of currency under- and overvaluation on China's exports and the spillover effects of these misalignments toward the exports of 9 Asian main economies. We argue that the exchange rate deviation from the long-run equilibrium value, rather than the exchange rate change, is the main force for global trade imbalances. We find consistent yet mild RMB undervaluation as well as overvaluation across time. Most of the Asian economies in our analyses are impacted by these RMB misalignments. Both bilateral and weighted average real exchange rates are applied to ensure the robustness of the model estimations. We also discuss the implications from a series of China's foreign exchange policy reform and industrial structure transformations on the empirical findings. Several policy implications and suggestions are made from the empirical findings.

Re-Examining the Nexus between Exchange and Interest Rates in Nigeria

Nigeria has experienced somersault of foreign exchange policies by the Central Bank. One policy concern in recent times is to have an appropriate target of the exchange and interest rates. Therefore, this paper seeks to provide a foundation for the targeting of an appropriate exchange and interest rates for the country. Using the Johansen Cointegration and Vector Error Correction Mechanism approaches, it specifically examines the relationships among Nigeria’s weak exchange rate, its local rate of interest and world interest rate. Contrary to many studies, a control measure involving inclusion of inflation, money supply and national output in the model is done. The analysis showed an equilibrium association between exchange rate and interest rate-cum-other variables and steady rectification of deviance from long-run stability over a sequence of incomplete short-run modifications. Increase in domestic and world interest rate, inflation, money supply and GDPat equilibrium would strengthen the exchange rate. Besides, further findings showed some bidirectional causal associations among the variables. By long-run implication, the targeting of an appropriate exchange rate in Nigeria requires a tightened monetary policy that is not inflation and growth biased. However, increase in world interest rate, money supply and inflation rate must be moderate in order not to worsen the exchange rate as suggested by the short-run result.

Re-Examining the Nexus between Exchange and Interest Rates in Nigeria

Nigeria has experienced somersault of foreign exchange policies by the Central Bank. One policy concern in recent times is to have an appropriate target of the exchange and interest rates. Therefore, this paper seeks to provide a foundation for the targeting of an appropriate exchange and interest rates for the country. Using the Johansen Cointegration and Vector Error Correction Mechanism approaches, it specifically examines the relationships among Nigeria’s weak exchange rate, its local rate of interest and world interest rate. Contrary to many studies, a control measure involving inclusion of inflation, money supply and national output in the model is done. The analysis showed an equilibrium association between exchange rate and interest rate-cum-other variables and steady rectification of deviance from long-run stability over a sequence of incomplete short-run modifications. Increase in domestic and world interest rate, inflation, money supply and GDPat equilibrium would strengthen the exchange rate. Besides, further findings showed some bidirectional causal associations among the variables. By long-run implication, the targeting of an appropriate exchange rate in Nigeria requires a tightened monetary policy that is not inflation and growth biased. However, increase in world interest rate, money supply and inflation rate must be moderate in order not to worsen the exchange rate as suggested by the short-run result.

Georgian foreign exchange market - Problems and Prospects

This article deals with the foreign exchange market, its essence and meaning in the world and in Georgia. Wide spectrum of foreign-economic settlements, tourism, capital, and labor migration, as well as other ongoing operations are carried out on foreign currency markets. it envisages us- age of foreign currencies by buyers, sellers, intermediaries, and other financial companies and firms. Georgian foreign exchange market can be considered as a less diversified mar- ket. Necessity of elaboration of the correct foreign exchange policy should be defined. For the purposes of mitigation of the strong fluctuation of the domestic currency, the currency market and the National Bank of Georgia should jointly work- out the strategy which would allow the national currency to maintain its stability.

The impact of the Chinese exchange policy on foreign trade with the European Union

ABSTRACT The aim of this paper is to analyze the impact of the Chinese foreign exchange policy on foreign trade with the European Union. After describing the importance of the exchange rate in an open economy and some of the methodologies employed to calculate its equilibrium value, we examine whether the Chinese competitiveness is due to the existence of misalignment (undervaluation) of its exchange rate, or rather, to other sources of competitiveness. For this purpose, we use a Vector Error Correction (VEC) model to estimate a long-run exports equation. The empirical results indicate that over the past few years, Chinese exports have benefited from an “unfair” competitive advantage resulting from the manipulation of its currency value.

Tipo de cambio

Globalización es un término que trasciende a un proceso económico, social, político y cultural que involucra la interacción entre países agrupando sus mercados, sociedades y culturas. Esto hace que los mercados pasen de ser nacionales a globalizados, interesando a las empresas a establecer estrategias que las hagan competitivas, para enfrentarse no solamente a una demanda interno, sino a una demanda externa. Con ello, debe aumentar cantidad y calidad de sus productos que permita sostenibilidad y permanencia en mercados globales. Es así, como empresas mexicanas compiten en mercados globales, en donde el comercio internacional ha servido de plataforma logística para que puedan incursionar a nuevos mercados entre ellos el colombiano, sin embargo, estas incursiones no están libres de riesgos, ya que operar fuera del país implica habituarse a los riesgos del mercado interno, como impuestos y las variaciones dadas en el tipo de cambio de la moneda local, y es por esto que el presente artículo busca conocer como la tasa de cambio influye en la internacionalización de empresas mexicanas en Colombia, para esto se inicia con fundamentos teóricos en política cambiaria e internacionalización, hasta llegar a conocer como han enfrentado empresas mexicanas el tipo de cambio, que les ha garantizado éxito y estabilidad en nuestro país.

It Is Time to Resolve Nigeriaas Monetary Policy Conundrums

In the last six years, Monetary Policy Committee (MPC) decisions have included easing the monetary policy rate (MPR) just once, November 2015, and the cash reserve requirement (CRR) has been eased just twice, July and November 2015. In contrast, the MPR has been tightened ten times, including twice during the recession in 2016, and the CRR has also been tightened ten times, including once in 2016. It is very puzzling that MPC finds extraneous reasons, typically about banks or foreign exchange supply, to tighten monetary policy, even when the economy is contracting and can do with some liquidity boost. This paper demonstrates how MPC decisions have become disconnected from economic realities, and suggests the urgent steps that must be taken to ensure a reconnect. We compare the patterns in historical monetary policy decisions across Soludo, Lamido, and Emefiele regimes to trace the emergence of the disconnect and establish the best strategies for reconnecting. We also clarify the numerous misconceptions about the nominal MPR, positive real interest rate, foreign portfolio inflows that are often expressed in the MPC communiques. The economy is bigger and more important than the banks, but MPC statements continue to dwell on banks’ conditions, rather than on economic conditions, indicative of lapses in banking supervision. Failures of micro/macro-prudential policies are spilling over into the monetary policy space, inflicting high growth and employment costs on the economy. What the UK government has done in reforming the Bank of England over the last two decades, especially in functionally separating responsibilities for monetary policy and micro/macro-prudential policies, is an example of the reforms required in Nigeria. Apart from banks’ conditions, MPC statements have also had a lot to say about the need to keep the policy rate high enough to attract foreign portfolio inflows, rather than ease rates to stimulate growth and investment, betraying another spill-over into the monetary policy space from weaknesses in the foreign exchange policies of the Central Bank of Nigeria (CBN). Nigeria’s foreign investment policy must be recalibrated away from preoccupation with volatile and easily reversible portfolio inflows towards greater reliance on harder to reverse diaspora and foreign direct investment inflows. We argue strongly for immediate reforms in Nigeria’s monetary policy processes, Nigeria’s banking supervision arrangements, and Nigeria’s foreign investment policies. Those reforms are needed to ensure an orderly transition to a low MPR/low CRR regime that is urgently needed to boost growth and investment.

Monetary policy effect in an economy with heavily managed exchange rate

The primary objective of this paper is to investigate the effect of monetary policy on macroeconomic variables in Vietnam, which is a small, open, and developing economy with heavily managed ex-change rate. Monetary policy shock is identified by the sign re-striction methodology. Unlike previous studies, this paper identifies a monetary contraction by a combination of an increase in interest rates, a decrease in central bank credit, a drop in the stock of foreign exchange reserves, and a fall in broad money. The empirical results show that output and prices begin to reduce after a restrictive mone-tary shock in the medium term, suggesting the adverse effect of monetary policy in the short term and the necessity to improve the transparency of monetary setting. Meanwhile, exchange rates are unresponsive to a tightening decision, which is not a sign of puzzle but plausible when the nature of a peg regime is taken into account. Furthermore, foreign exchange policy causes inflation to rise since its effect is partially sterilized by changes in monetary policy instru-ments. Therefore, Vietnamese monetary authorities should consider a shift toward a more floating regime to achieve monetary inde-pendence or foster the development of financial markets in order to alleviate inflationary pressure caused by foreign exchange policy.

Impact of Foreign Exchange Policies on Investments & Financings: The Nigerian Experience

The volatility of foreign exchange policies of developing countries has been identified as one of the major hindrances impeding the growth of investments and developments in these parts of the world, with the resultant effect of stultifying the achievement of the Sustainable Development Goals. This paper therefore seeks to examine the impact of the recent changes in the Nigerian foreign exchange policies and how these changes can, and have actually influenced corresponding decrease in investments and financings within the Nigerian polity; as a depiction of the effects of such volatile foreign exchange policies (as recently witnessed in Nigeria and as prevalent in other Africa countries) on achievement of growths in the developing and underdeveloped countries.

Exchange Rate Policy and Nigeria's Economic Growth: A Granger Causality Impact Assessment

The exchange rate policy seems to be the life-wire of the Nigeria economy following the introduction of structural adjustment programme in 1986 which the mark the starting point of the depreciation of the local currency against the US dollar. With this in our minds, this study ascertains the impact of real exchange rate on gross domestic product and manufacturing capacity utilization of Nigeria from 1986 to 2015. The time series data we collected from the Central Bank of Nigeria statistical bulletin of 2015 passed the stationarity test and subjected to sensitivity analysis visa viz: Ramsey Reset specification, serial correlation, heteroskedasticity and multi-collinearity test. The ordinary least square estimation technique was applied in estimating the models developed. A long run relationship between exchange rate policy and economic growth was reveal by Johansen co-integration analysis. Focusing on impact assessment, the pairwise granger causality reveals that real exchange rate has significant impact on real gross domestic product and there is a positive but insignificant relationship between real exchange rate and real gross domestic product. Regardless of the positive and insignificant relationship between real exchange rate and manufacturing capacity utilization, real exchange rate significantly impacts manufacturing capacity utilization within the period studied. The Central Bank of Nigeria should put in place a strict foreign exchange policy control to ensure that the value of Naira against other currency is properly determined. Unethical practices by banks leading depreciation of the Naira should be investigated and erring operators sanctioned accordingly. Incentives, e.g. tax holiday and subsidies should be given to local manufacturers to improve output. An industrial blueprint should be put in place to allow a connection between agriculture and manufacturing to increase foreign exchange from exports.