Cuba's monetary reform will create multiple shocks

2020 ◽  
Keyword(s):  
Exchange Rate ◽  
Black Market ◽  
Monetary Reform ◽  
Content Type ◽  
Market Activity ◽  
Market Rate ◽  
Multiple Shocks ◽  
Monetary Circuit

Significance The long-postponed move is essential but will send shockwaves through the economy. Inflation and currency flight will soar. Salary and pension hikes will be quickly eaten up by price rises and companies will fail without new subsidies. Impacts Devaluation may spur far-reaching reforms of inefficient state companies, but Havana has disclosed few details of how that might happen. The new CUP24:USD1 exchange rate will be unsustainable; the black-market rate has already reached CUP50:USD1. Inflation fears will trigger a rush to buy goods, increasing scarcity, hoarding and black-market activity. The disappearance of the CUC will not end monetary dualism: the recently expanded dollar shops will become a parallel monetary circuit.

Assessing the application of Islamic and conventional hedgings in Indonesia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rifki Ismal
Keyword(s):  
Exchange Rate ◽  
Quantitative Research ◽  
Money Market ◽  
Currency Hedging ◽  
Content Type ◽  
Forward Premium ◽  
Market Rate ◽  
Qualitative Research Methodology ◽  
Forward Contract ◽  
Static Simulation

Purpose Banks in Indonesia offer two currency-hedging mechanisms to business players to hedge their portfolio against exchange rate risk, namely, Islamic hedging and conventional hedging. Taking into account that Islamic finance stakeholders in Indonesia want to accelerate Islamic hedging transactions, assessing the feasibility of Islamic hedging to serve the business players is very important. Thus, this paper aims to compare the conventional and Islamic currency-hedging mechanisms, particularly to identify which one to be preferred by the business players, identify terms and conditions if Islamic hedging is more preferable, give information regarding the estimated profit and payment of the premium in adopting currency-hedging (both conventional and Islamic hedgings) and prove the workability of Islamic currency-hedging as a new hedging mechanism for the business players. Design/methodology/approach The paper uses qualitative research methodology by comparing Islamic and conventional hedging and a quantitative research method by using a forward contract formula. Technically, the paper conducts a static simulation of the forward transactions by using both conventional and Islamic hedgings to hedge the foreign exchange (forex) credit received by business players from banks. The forward contract simulation uses US dollar (USD) against Indonesian rupiah (IDR) from December 2003 to February 2019 and the forward premium uses both Islamic and conventional money market rates called PUAB (conventional interbank money market) rate and PUAS (Islamic interbank money market) rate. Findings The paper finds that Islamic hedging is more preferable to conventional one due to some considerations which are the number of profitable months, the minimum payment of premium and the highest payment of profit. However, even though the Islamic hedging mechanism has the advantage of having a higher Islamic money market rate than the conventional one, the economic condition (particularly the movement of IDR exchange rate) has to be considered as well particularly during the volatile exchange rate movement. Research limitations/implications The paper has not occupied macroeconomic variables such as inflation, GDP, international trade, as they might influence the movement of IDR exchange rate. In addition, it uses static simulation rather than a dynamic one. Originality/value This is the first paper assessing both Islamic and conventional hedging mechanisms in the case of Indonesia

Crisis spurs Cuban monetary reform

2020 ◽  
Keyword(s):  
Economic Reform ◽  
Foreign Currency ◽  
Black Market ◽  
Monetary Reform ◽  
Inflation Dynamics ◽  
Content Type ◽  
Reform Agenda ◽  
Social Tension

Significance This step is essential to advancing the country’s economic reform agenda, but it promises to be tricky, putting pressure on inefficient state companies, threatening savings and risking inflation dynamics that will be difficult to control. Impacts Inflation fears will see demand for foreign currency on the black market rise further. Despite government pledges to guarantee cash and savings, people will seek to invest or hoard goods, increasing pressure on provisions. Social tension may rise but major unrest is unlikely during the pandemic, with efforts to contain the virus commanding widespread support.

The Brazilian Exchange Rate Crisis of January 1999

2002 ◽  
Vol 34 (1) ◽  
pp. 143-164 ◽  
Author(s):  
AFONSO FERREIRA ◽  
GIUSEPPE TULLIO
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regime ◽  
Monetary Reform ◽  
The Real ◽  
Market Rate ◽  
The Us ◽  
Us Dollar ◽  
The Exchange Rate

From the monetary reform of July 1994 until January 1999 Brazil followed the policy of pegging the new currency (the real) to the US dollar. The central rate was initially fixed at 1[ratio ]1 to the US dollar, but no fluctuation band was set and the market rate was allowed to fluctuate substantially. After a sharp appreciation of up to 15 per cent the real remained at a premium to the dollar for two years (until June 1996). In March 1995, following the Mexican crisis, the Banco Central do Brasil adopted a crawling band without preannounced depreciations. This change in policy was meant to increase somewhat the flexibility of the exchange rate regime while still maintaining an anchor for inflationary expectations. The market rate depreciated by 13.9 per cent in the course of 1995 (December 1995 on December 1994), 7.1 per cent in 1996, 7.3 per cent in 1997 and 8.3 per cent in 1998. By December 1998 it had reached 1.2054 to the US dollar, a depreciation of only 20 per cent with respect to the central rate fixed at the end of the hyperinflation but about 40 per cent with respect to the rate prevailing in July 1994.

Islamic hedging for pilgrimage funds: case of Indonesia

2019 ◽  
Vol 11 (3) ◽  
pp. 328-341
Author(s):  
Rifki Ismal ◽  
Nurul Izzati Septiana
Keyword(s):  
Exchange Rate ◽  
The Other ◽  
Exchange Rate Risk ◽  
Content Type ◽  
Other Hand ◽  
Rate Risk ◽  
Risk Identify ◽  
Hajj Season ◽  
The Right ◽  
Very High

Purpose The demand for Saudi Arabian real (SAR) is very high in the pilgrimage (hajj) season while the authority, unfortunately, does not hedge the hajj funds. As such, the hajj funds are potentially exposed to exchange rate risk, which can impact the value of hajj funds and generate extra cost to the pilgrims. The purpose of this paper is to conduct simulations of Islamic hedging for pilgrimage funds to: mitigate and minimize exchange rate risk, identify and recommend the ideal time, amount and tenors of Islamic hedging for hajj funds, estimate cost saving by pursuing Islamic hedging and propose technical and general recommendations for the authority. Design/methodology/approach Forward transaction mechanism is adopted to compute Islamic forward between SAR and Rupiah (Indonesian currency) or IDR. Findings – based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds. Findings Based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds. Research limitations/implications The research suggests the authority to (and not to) hedge the hajj fund, depending on economic conditions and market indicators. Even though the assessment is for the Indonesian case, other countries maintaining hajj funds might also learn from this paper. Originality/value To the best of author’s knowledge, this is the first paper in Indonesia that attempts to simulate the optimal hedging of hajj funds.

Investor protection and market reaction to unusual market activity replies

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chun-Teck Lye ◽  
Tuan-Hock Ng ◽  
Kwee-Pheng Lim ◽  
Chin-Yee Gan
Keyword(s):  
Market Reaction ◽  
Investor Protection ◽  
Abnormal Returns ◽  
Stock Exchanges ◽  
Uncertain Information ◽  
Information Uncertainty ◽  
Content Type ◽  
Market Activity ◽  
Information Hypothesis ◽  
New Information

PurposeThis study uses the unique setting of unusual market activity (UMA) replies to examine the market reaction and the effects of disclosure and investor protection amid information uncertainty.Design/methodology/approachA total of 1527 hand-collected UMA replies from the interlinked stock exchanges of Indonesia, Malaysia, Thailand and Singapore for the period of 2015–2017 were analysed using event study and Heckman two-step methods with market and matched control firm benchmarks.FindingsThe overall results support the uncertain information hypothesis. The UMA replies with new information were also found to reduce information uncertainty, but not information asymmetry, and they are complementary to investor protection in enhancing abnormal returns. The overall finding suggests that the UMA public query system can be an effective market intervention mechanism in improving information certainty and efficiency.Research limitations/implicationsThis study provides insight on the effects of news replies and investor protection on abnormal returns, and support for the uncertain information hypothesis. The finding is useful to policymakers and stock exchanges as they seek to understand how to alleviate investors' anxiety and to create an informationally efficient market. Nevertheless, this study is limited by the extensiveness of the hand-collected UMA replies and also the potential issue of simultaneity-induced endogeneity.Originality/valueThis study uses UMA replies and cross-country data taking into account the effects of market surroundings such as information uncertainty and the level of investor protection on market reaction.

Monetary and Exchange Rate Policies for International Financial Stability: A Proposal

1988 ◽  
Vol 2 (1) ◽  
pp. 83-103 ◽  
Author(s):  
Ronald I McKinnon
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Purchasing Power Parity ◽  
Financial Stability ◽  
Foreign Exchange Market ◽  
The United States ◽  
Power Parity ◽  
Monetary Reform ◽  
Exchange Rate Fluctuations

What keeps the three major industrial blocs -- Western Europe, North America, and industrialized Asia -- from developing a common monetary standard to prevent exchange-rate fluctuations? One important reason is the differing theoretical perspectives of economic advisers. The first issue is whether or not a floating foreign exchange market -- where governments do not systematically target exchange rates -- is “efficient.” Many economists believe that exchange risk can be effectively hedged in forward markets so international monetary reform is unnecessary. Second, after a decade and a half of unremitting turbulence in the foreign exchange markets, economists cannot agree on “equilibrium” or desirable official targets for exchange rates if they were to be stabilized. The contending principles of purchasing power parity and of balanced trade yield very different estimates for the “correct” yen/dollar and mark/dollar exchange rates. Third, if the three major blocs can agree to fix nominal exchange rates within narrow bands, by what working rule should the new monetary standard be anchored to prevent worldwide inflation or deflation? After considering the magnitude of exchange-rate fluctuations since floating began in the early 1970s, I analyze these conceptual issues in the course of demonstrating how the central banks of Japan, the United States, and Germany (representing the continental European bloc) can establish fixed exchange rates and international monetary stability.

Macroeconomic fundamentals and dynamics of the Indian rupee-dollar exchange rate

2015 ◽  
Vol 7 (4) ◽  
pp. 301-326 ◽  
Author(s):  
Chandan Sharma ◽  
Rajat Setia
Keyword(s):  
Exchange Rate ◽  
Structural Break ◽  
Cointegration Analysis ◽  
Least Square ◽  
Dollar Exchange Rate ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Indian Rupee ◽  
Macroeconomic Fundamentals ◽  
The Impact

Purpose – This paper aims to examine the relationship between Indian rupee-US dollar exchange rate and the macroeconomic fundamentals for the post-economic reform period. Design/methodology/approach – The authors have used an empirical model which includes a range of important macroeconomic variables based on the basic monetary theories of exchange rate determination. At the first stage of the analysis, they have tested structural break in the data. Subsequently, they have employed the fully modified ordinary least square, Wald’s coefficient restriction and impulse response functions (IRF) to estimate the monetary model in the long- and short-run horizons. Findings – Results of analyses indicate that the macroeconomic fundamentals determine exchange rate in a significant way, but their effect varies sizably across the periods. The IRF illustrate the importance of interest rate in controlling exchange rate volatility. Practical implications – The analysis of the behavior of inter-relationship among macroeconomic variables will help policymakers in a deep-rooted understanding of this complex and time-varying relationship. Originality/value – Most of the existing studies have tested the impact of a single or a few macroeconomic fundamentals on exchange rate. But in the present study, we have tested the impact of a range of important variables, i.e. money supply, real income or output, price level and trade balance. Further, considering the importance of structural breaks in data, they authors have employed standard tests of structural break and incorporated the issue in the cointegration analysis.

Exploring the relationship between macroeconomic indicators and sovereign credit default swap in Pakistan

2017 ◽  
Vol 18 (4) ◽  
pp. 368-380
Author(s):  
Abdul Rashid ◽  
Farooq Ahmad ◽  
Ammara Yasmin
Keyword(s):  
Exchange Rate ◽  
Credit Default Swap ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Credit Default ◽  
Macroeconomic Indicators ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate

Purpose This paper aims to empirically examine the long- and short-run relationship between macroeconomic indicators (exchange rates, interest rates, exports, imports, foreign reserves and the rate of inflation) and sovereign credit default swap (SCDS) spreads for Pakistan. Design/methodology/approach The authors apply the autoregressive distributed lag (ARDL) model to explore the level relationship between the macroeconomic variables and SCDS spreads. The error correction model is estimated to examine the short-run effects of the underlying macroeconomic variables on SCDS spreads. Finally, the long-run estimates are obtained in the ARDL framework. The study uses monthly data covering the period January 2001-February 2015. Findings The results indicate that there is a significant long-run relationship between the macroeconomic indicators and SCDS spreads. The estimated long-run coefficients reveal that both the interest rate and foreign exchange reserves are significantly and negatively, whereas imports and the rate of inflation are positively related to SCDS spreads. Yet, the results suggest that the exchange rate and exports do not have any significant long-run impact on SCDS spreads. The findings regarding the short-run relationship indicate that the exchange rate, imports and the rate of inflation are positively, whereas the interest rate and exports are negatively related to SCDS spreads. Practical implications The results suggest that State Bank of Pakistan should design monetary and foreign exchange rate polices to minimize unwanted variations in the exchange rate to reduce SCDS spreads. The results also suggest that it is incumbent to Pakistan Government to improve the balance of payments to reduce SCDS spreads. The findings also suggest that the inflation targeting policy can also help in reducing SCDS spreads. Originality/value This is the first study to examine the empirical determinants of SCDS spreads for Pakistan. Second, it estimates the short- and long-run effects in the ARDL framework. Third, it considers both internal and external empirical determinants of SCDS spreads.

Earthquake complicates Haiti's long-term challenges

2021 ◽  
Keyword(s):  
Dominican Republic ◽  
Black Market ◽  
Crime Rates ◽  
Content Type ◽  
External Assistance ◽  
Political Turmoil ◽  
Socioeconomic Challenges

Significance The 7.2-magnitude earthquake caused widespread damage to buildings and infrastructure. The disaster comes amid political turmoil, following the assassination of President Jovenel Moise last month, and threatens to compound pre-existing socioeconomic challenges stemming from the COVID-19 pandemic, surging crime rates, and fuel shortages in some areas. Impacts The Dominican Republic is sending aid, but will also increase security along its border to prevent increased migration. Gangs will seek to extort humanitarian groups or siphon off relief supplies to sell on the black market. Henry’s increased reliance on external assistance could affect trust in his administration, especially if elections are delayed too long.

Sukuk and monetary policy transmission in Indonesia: the role of asset price and exchange rate channels

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Suriani Suriani ◽  
M. Shabri Abd. Majid ◽  
Raja Masbar ◽  
Nazaruddin A. Wahid ◽  
Abdul Ghafar Ismail
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Asset Price ◽  
Transmission Mechanism ◽  
Monetary Policy Transmission ◽  
Content Type ◽  
Policy Transmission ◽  
Monetary Policy Transmission Mechanism

Purpose The purpose of this study is to empirically analyze the role of sukuk in the monetary policy transmission mechanism through the asset price and exchange rate channels in the Indonesian economy. Design/methodology/approach Using the monthly data from January 2003 to November 2017, this study uses a multivariate vector error correction model causality framework. To examine the role of sukuk in the monetary policy transmission mechanism through the asset price channel, this study uses the variables of consumption, inflation, interest rates, economic growth and the composite stock price index. Meanwhile, to examine the role of sukuk in the monetary policy transmission mechanism through the exchange rate channel, this study used variables of inflation, interest rates, economic growth, foreign investment and exchange rate. Findings This study documented that sukuk has no causal relationship with inflation through asset price and exchange rate channels. Nevertheless, sukuk has a bidirectional causal relationship with economic growth through asset price and exchange rate channels. Sukuk is also documented to have a causal relationship with monetary policy variables of interest rate and stock prices through asset price and exchange rate channels. Finally, a unidirectional causality is recorded running from the exchange rate to sukuk in the exchange rate channel. Research limitations/implications The finding of independence of the sukuk market from interest rates provides evidence that the trading of the sukuk in Indonesia has been in harmony with the Islamic tenets. Practical implications The relevant Indonesian authorities need to enhance both domestic and global sukuk markets as part of efforts to promote the sustainability of Islamic capital market development in Indonesia. Originality/value To the best of the authors’ knowledge, this study is among the first attempts to empirically investigate the role of sukuk in monetary policy transmission through asset price and exchange rate channels in the context of the Indonesian economy.

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