Concept note

Implications of foreign exchange policy choices in low-income countries

The exchange rate policy of poor countries must be guided by a sustainable economic development strategy, aiming to achieve rapid, inclusive, environmentally-friendly and pro-poor economic growth, as well as an integration into economic and financial globalisation.

The choice of foreign exchange policy determines both the conditions of domestic and foreign currency exchange (foreign exchange controls) and their price (exchange rate regime, exchange rate developments, etc.). It has direct, short-term implications for commercial and financial exchanges between countries, as well as for their domestic economies (economic activity, inflation, fiscal balances, etc.). It also has a major impact on longer-term economic dynamics and hence on the development trajectory of low-income countries, both economically (long-term growth), socially (income distribution) and environmentally (natural resource management and climate change).

The choice of foreign exchange policy reflects low-income countries’ own characteristics: : i) small economies, highly dependent on international trade and vulnerable to terms of trade shocks, in particular exposed to the volatility of commodity prices (see BDF-FERDI conference of 2017); ii) a high degree of dependence on external financing (official development assistance, migrant remittances, etc.), associated with weak financial development and a low but improving degree of financial market integration (see BDF-FERDI conference of 2014); iii) powerlessness in the face of their developed and emerging partners' currency volatility, and the resulting risks of financial instability ; iv) institutional weaknesses, raising uncertainty as to the effective implementation of the other components of economic policy v) high vulnerability to global warming and natural disasters. 

The exchange rate policy of low-income countries must be guided by a sustainable economic development strategy, aiming to achieve rapid, inclusive, environmentally-friendly and pro-low-income economic growth, as well as an integration into economic and financial globalisation.

Objective of the conference:

The objective of the conference is to highlight the most recent progress in economic research on the long-term effects of exchange rate policy and the experience acquired by professionals, in order to identify which exchange rate policies are the best suited to low-income countries' development strategies, notably in the framework of existing or proposed monetary unions. The diversity of the speakers, from Africa and beyond, academics or practitioners offering a wide range of experience, will provide insights into the implications of exchange rate policy with respect to the three key sustainable development issues:

1. economic growth in high-population-growth countries
2. income distribution, in particular, poverty trends
3. climate change which justifies moderation and adaptation efforts and, more generally, the conservation of the environment.