(2022-11) Lessons from Haiti's Recent Exchange Rate Developments
Summary — This IMF working paper analyzes Haiti's successful exchange rate appreciation from August-October 2020, when the gourde appreciated 50% against the US dollar. The study examines policy measures taken and their economic consequences on various sectors.
Key Findings
- Foreign exchange surrender requirements had statistically significant effects on nominal exchange rate, while central bank intervention did not.
- Surrender requirements increased trading costs and volatility in the forex market and contributed to wider parallel exchange rate premiums.
- The 50% gourde appreciation from August-October 2020 helped reduce headline inflation and provided fuel subsidy savings to government.
- Remittance-dependent households and exporters experienced reduced purchasing power during the appreciation period.
- Haiti's net external buffers were adversely affected by the exchange rate policies implemented.
Full Description
This comprehensive analysis examines Haiti's remarkable exchange rate episode from August to October 2020, during which the Haitian gourde appreciated dramatically by 50 percent against the US dollar, from approximately 124 to 62 gourdes per dollar. The study focuses on the policy measures implemented by Haiti's central bank (BRH), including foreign exchange surrender requirements, forex sales, and enhanced communications.
The research reveals that foreign exchange surrender requirements had a statistically significant effect on the nominal exchange rate, while central bank intervention did not show the same impact. However, these surrender requirements also increased trading costs and volatility in the foreign exchange market, contributing to the development of a wider parallel exchange rate premium that impeded efficient market functioning.
The appreciation had mixed economic impacts across different sectors and populations. While it contributed to declining headline inflation and provided fuel subsidy-related savings to the government, it adversely affected remittance-dependent households and exporters who saw their purchasing power decline. The country's net external buffers were also negatively impacted during this period.
The study employs sophisticated econometric modeling to understand these dynamics and offers policy recommendations for improving foreign exchange management and boosting external sustainability while supporting the central bank's overall policy objectives in this fragile, shock-prone economy.