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Foreign Exchange Queues, Informal Traders, and a Zero Premium in the Black Market: A Cape Verdean Puzzle

Author

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  • Mr. Jan-Peter Olters

Abstract

During 1996–98, several indicators hinted at the apparent unsustainability of Cape Verde’s exchange rate peg. The country, faced with a considerable backlog of approved but unmet applications for foreign currencies, tolerated a parallel market. Street traders, however, demanded only negligible premiums (if any at all) for foreign exchange. By integrating the emigrants’ transfer decisions into a basic Mundell-Fleming-type model, the author conjectures that this puzzle can be explained with the increasing use of transfer channels outside the banking system, leading to unrecorded inflows of foreign exchange. Analysis of the relevant balance of payments data appears to support this result.

Suggested Citation

  • Mr. Jan-Peter Olters, 1999. "Foreign Exchange Queues, Informal Traders, and a Zero Premium in the Black Market: A Cape Verdean Puzzle," IMF Working Papers 1999/110, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/110
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    Cited by:

    1. Joao Loureiro & Manuel M.f. Martins & Ana Paula Ribeiro, 2010. "Cape Verde: The Case For Euroisation," South African Journal of Economics, Economic Society of South Africa, vol. 78(3), pages 248-268, September.
    2. International Monetary Fund, 2006. "Determinants of Emigrant Deposits in Cape Verde," IMF Working Papers 2006/132, International Monetary Fund.

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