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Dual Exchange Rate

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Dual Exchange Rate
A situation in which a currency has two official exchange rates, one pegged to another currency and the other floating. Each is used for different things. The exchange rate for money used for sectors seen as essential, such as food, is fixed, while "non-essential" sectors are allowed to float. A dual exchange rate allows a country to devalue its currency to reflect market realities without the pain of high inflation that usually accompanies severe devaluation. Critics allege that a dual exchange rate is less efficient than a straightforward devaluation and acts as a tariff on industries the government sees as luxuries.


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market rate was introduced for foreign trade-related transactions and the regime became a dual exchange rate system where the official fixed exchange rate coexisted with the market-determined rate in the swap centres.
Monetary policy consists mainly of ensuring that aggregate spending expands in line with output growth, although the existence of the large informal economy and the dual exchange rate complicates this task.
It is difficult to see how Europe might adopt dual exchange rates, one for trade and another for capital movements, in a way that would not provide opportunities for financial arbitrage.
 
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