REGULATION OF THE BLACK FOREIGN EXCHANGE MARKET

Abstract

In many countries there is no free foreign exchange market. There exists an official exchange rate, and besides it — due to liberal law enforcement policies — a black market flourishes. One such country is Israel, where the black market exchange rate is commonly known, and the daily rate is published in newspapers. Since the establishment of the State several devaluations have taken place which raised the official exchange rate from IL0.333 per dollar in 1949 to IL6.00 in the middle of 1975. Except for the immediate periods after the devaluations the black market rate of exchange was significantly higher than the official one. However, while till 1962 the average difference between the two was about 45%, with a high variance of 36.3, it went down to less than 10% with much smaller variance of 11.2 since then. This reduction in the free market premium and its variability over time could partially be explained by more frequent changes in the official exchange rate, but part of it is probably a result of government intervention in the free foreign currency exchange market.

Citation

LADANY, S.P. and ARBEL, A. (1976), "REGULATION OF THE BLACK FOREIGN EXCHANGE MARKET", Journal of Economic Studies, Vol. 3 No. 2, pp. 133-140. https://doi.org/10.1108/eb008067