Dollars for sale: Exchange rate policy and inflation in Africa

In Africa, the government is often the main provider of foreign exchange, acquired through aid or via a nationalized mining sector, although a parallel market is also usually active. A policy of indexing the official exchange rate on the parallel one is destabilizing, while a nominal anchor policy, has the opposite effect. Using the case of Nigeria, these stylized facts are interpreted in the light of an analytical model with rational expectations. The case of Guinea is also presented, as an example of where the nominal anchor policy has succeeded. (C) 1999 Elsevier Science Ltd. All rights reserved.