Abstract
In the early 1970s, many European countries faced a difficult predicament. Uniform fixed exchange rates allowed speculative capital movements to deliver large international reserve fluctuations, yet abandoning fixed exchange rates in favor of flexible rates could possibly deliver large exchange rate fluctuations that would disrupt trade. Between 1971 and 1974, several European countries, such as Belgium, France, and Italy, used a dual exchange market as a temporary middle-ground between the fixed and flexible rate extremes. Such an arrangement involved the formal establishment of separate exchange markets, with separate exchange rates, for current and capital account transactions.
I am indebted to Robert Flood, Andrew Oswald, and Alex Zanello for helpful discussion. I also wish to thank project organizers Miguel Kiguel, Saul Lizondo, and Steve O’Connell, my discussant, Pablo Guidotti, as well as Joshua Aizenman, Mike Knetter, and Carsten Kowalczyk for comments on an earlier draft. I thank Robert Cumby, Kellett Hannah, and Saul Lizondo for assistance in acquiring some of the data. John Dean and Murtaza Moochhala provided helpful research assistance.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsPreview
Unable to display preview. Download preview PDF.
References
Adams, Charles and Jeremy Greenwood (1985) ‘Dual Exchange Rate Systems and Capital Controls: an Investigation’, Journal of International Economics, vol. 18, pp. 43–63.
Bhagwati, Jagdish N. (1964) ‘On the Underinvoicing of Imports’, Bulletin of the Oxford University Institute of Statistics, vol. 26, no. 4, pp. 389–97.
(Also in Bhagwati, J. (ed.) (1974) Illegal Transactions in International Trade (Amsterdam: North-Holland).)
Bhandari, Jagdeep, S. and Bernard Decaluwe (1987) ‘A Stochastic Model of Incomplete Separation Between Commercial and Financial Exchange Markets’, Journal of International Economics, vol. 22(1/2), pp. 25–55.
Bindert-Bogdanowicz, C. (1979) ‘The Dual Exchange Rate System’, Revue de la Banque Bruxelles, June.
Dornbusch, Rudiger (1986) ‘Special Exchange Rates for Capital Account Transactions’, World Bank Economic Review, vol. 1, no. 1, pp. 1–33.
Dornbusch, Rudiger, Daniel V. Dantas, Clarice Pechman, Roberto Rocha, and Demetri Simoes (1983) ‘The Black Market for Dollars in Brazil’, Quarterly Journal of Economics, vol. 98, pp. 25–40.
Fleming, J. Marcus (1971) ‘Dual Exchange Rates for Current and Capital Transactions: a Theoretical Examination’, in J. Marcus Fleming (ed.), Essays in International Economics (Cambridge, Mass: Harvard University Press), pp. 296–325.
Flood, Robert P. (1978) ‘Exchange Rate Expectations in Dual Exchange Markets’, Journal of International Economics, vol. 8, pp. 65–77.
Flood, Robert P. and Nancy P. Marion (1982a) ‘Exchange-rate Regimes in Transition: Italy 1974’, Journal of International Money and Finance, vol. 2, pp. 279–94.
Flood, Robert P. and Nancy P. Marion (1982b) ‘The Transmission of Disturbances Under Alternative Exchange-rate Regimes with Optimal Indexing’. Quarterly Journal of Economics, vol. 97, pp. 43–66.
Flood, Robert, P. and Nancy P. Marion (1989) ‘Risk Neutrality and the Two-tier Foreign Exchange Market: Evidence from Belgium’, Working Paper No. 89/83 (Washington, DC: IMF).
Frenkel, Jacob and Assaf Razin (1986) ‘The Limited Viability of Dual Exchange-rate Regimes’, Working Paper No. 1902 (Cambridge, Mass.: National Bureau of Economic Research).
Ghei, Nita and Miguel A. Kiguel (1992) ‘Dual and Multiple Exchange Rate Systems in Developing Countries: Some Empirical Evidence’, Policy Research Working Paper Series No. 881 (Washington, DC: World Bank).
Giavazzi, Francisco and Alberto Giovannini (1989) Limiting Exchange Rate Flexibility: the European Monetary System (Cambridge, Mass: The MIT Press).
Gros, Daniel (1988) ‘Dual Exchange Rates in the Presence of Incomplete Market Separation’, IMF Staff Papers, vol. 35, pp. 437–60.
Guidotti, Pablo and Carlos Vegh (1992) ‘Macroeconomic Interdependence under Capital Controls: a Two-country Model of Dual Exchange Rates’, Journal of International Economics, vol. 32, no. 34, pp. 353–67.
International Monetary Fund (various years) Exchange Arrangements and Exchange Restrictions (Washington, DC: International Monetary Fund).
International Monetary Fund (various years) International Financial Statistics (Washington, DC: International Monetary Fund.
Lanyi, A. (1975) ‘Separate Exchange Markets for Capital and Current Transactions’, IMF Staff Papers, vol. 22, pp. 714–49.
Lizondo, J. Saul (1987) ‘Unification of Dual Exchange Rate Markets’, Journal of International Economics, vol. 22, nos 1/2, pp. 57–77.
Marion, Nancy P. (1981) ‘Insulation Properties of a Two-tier Exchange Market in a Portfolio Balance Model’, Economica, vol. 48, pp. 61–70.
Pinto, Brian (1991) ‘Black Markets for Foreign Exchange, Real Exchange Rates and Inflation’, Journal of International Economics, vol. 30, pp. 121–36.
Wasserfallen, W. (1986) ‘Non-stationarities in Macro-economic Time Series — Further Evidence and Implications’, Canadian Journal of Economics, vol. 19, pp. 498–510.
Editor information
Editors and Affiliations
Copyright information
© 1997 Miguel A. Kiguel, J. Saul Lizondo and Stephen A. O’Connell
About this chapter
Cite this chapter
Marion, N.P. (1997). European Dual Exchange Rates. In: Kiguel, M.A., Lizondo, J.S., O’Connell, S.A. (eds) Parallel Exchange Rates in Developing Countries. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-25520-7_11
Download citation
DOI: https://doi.org/10.1007/978-1-349-25520-7_11
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-25522-1
Online ISBN: 978-1-349-25520-7
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)