Do Exchange Auctions Work? An Examination of the Bolivian Experience
The Bolivian experience suggests that, even in highly indexed economies, exchange rate auctions can work. After introduction of its auction, the Bolsin, not only did the parallel market premium for dollars all but disappear in Bolivia, but the Boliviano exchange rate remained surprisingly stable. This paper examines how the Bolsin accomplished this. The empirical evidence from daily auction data suggests that credit for the Bolsin's success should be attributed largely to central bank policy at the auction rather than the auction as an institution.