Dual Exchange Rate

A dual exchange rate is where one currency has two different exchange rates: one that’s fixed and set by the government, and the rebel one that’s riding the tides of the free market in the underground exchange rate trade. Things like imports and exports will be going by the book with the fixed exchange rate, while internal transactions are more open to the free market exchange rate.

Sometimes though, dual exchange rates aren’t illegal. For instance, a country might give a thumbs up to a dual exchange rate temporarily if they think it’ll help them with an economic crisis.

How would a dual exchange rate help an economy that’s freaking out? Well, take Argentina for example, a country that put on its dual exchange rate hat in 2001 after years of economic woes and super-high unemployment. Actually, don’t...it didn’t work out so well for them. But the idea is that a country could get the best of both worlds: maintain stability in one area while trying to capture the benefits of competition in another.

Dual exchange rates are complicated both in theory and in practice, especially since savvy folk can take advantage and profit off of it.