These challenges have included mounting pressure on the exchange rate and foreign exchange reserves against the backdrop of excessive demand for foreign exchange concerning supply (limited export earnings and capital inflows, and weak accretion to foreign exchange reserves). In this piece, I front-load my conclusion that foreign exchange market deregulation is a quick-fix and escapist option that does not address the fundamental factors of the foreign exchange market crisis. Under a managed float exchange rate system, the government intervenes in the foreign exchange market (through the use of interest rate and/or foreign exchange supply) to influence the exchange rate to the desired level. Foreign capital brought into the country at a very high exchange rate will also be taken out at the same high exchange rate. The I & E exchange rate is the official exchange rate for investors, exporters and end-users.

Source: The Guardian April 18, 2022 04:19 UTC