Foundations
Multiple Exchange Rates
What are we talking about?
Depending on the local regulation, there can be a range of different exchange rates, either officially or unofficially, at a given point in time in a country.
This happens either because the official exchange rate had been 'pegged' to a fixed value but has since become unofficially overvalued (in which case it is associated with currency depreciation and yields black market values for currency exchange that are very volatile) or because banks and/or other FSPs are officially authorized to set their own commercial rates.
In a few instances, multiple exchange rates have also stemmed from a combination of complex political dynamics and devaluation, like in Yemen or in Iraq whereby different areas under the control of different authorities had different exchange rates.
Why do we care?
Unofficial multiple exchange rates have an effect on populations in terms of further increasing the uncertainty related to currency depreciation and it typically also increases the exposure to exploitation of the most vulnerable since they will not hold the best bargaining power vis-a-vis financial service providers that they will increasingly depend upon. The existence of multiple exchange rates also makes price comparisons more complex and less transparent and creates some space for speculation.
Preferential rates are also typically given to importers of ‘essential’ goods such that they can buy more with the same amount of local currency, while importers of ‘non-essential’ goods have a less encouraging exchange rate.
Humanitarian organizations can sometimes be authorized to buy currency at a preferential rate. In other contexts, they may instead be forced to use the official rate, which typically induces a loss of value of assistance compared to market rates.
While NGOs should never engage in black market (illegal) activity and effectively use an exchange rate that they are not authorized to, programmatic calculations can be still based on market rates.
How do we monitor it?
(Official) exchange rates are published by the Central Bank. But it can be difficult to keep track of which rates applies to which type of stakeholders or which type of transaction.
It is also essential to document and keep track of the (unofficial) market rate, so as to be able to monitor the depreciation of the value of the currency.