Mobile Sellers and Oligopoly: An Empirical Analysis of the Foreign Exchange Market in Poland, 1988–1989

Abstract

One of the distinctive financial institutions which, in the period of the post-planned economy, has become especially evident in Eastern Europe, is a free and highly decentralized domestic market for foreign currencies. Markets like these have existed in Eastern Europe for a long time, supplying foreign currencies to local buyers, who in turn use them for financing their foreign travel (often for commercial purposes), domestic consumption of goods in short supply, investment accumulation and as a speculative asset. Sellers obtain their supply of foreign currencies from foreign tourists, diplomats and from fellow citizens working abroad (for detailed analyses of the currency markets in Eastern Europe see e.g. Charemza and Ghatak [1990], Cowitt [1991], Vanous (forthcoming) and Starzec [1983]). Of the many such East European markets those in Poland are the most highly developed, where finally in March 1989 they were legalized.

We wish to thank Derek Deadman and Klaus Ritzberger, Invited Discussant of our paper, for their helpful comments and suggestions. They are not responsible for any remaining deficiencies. W.W. Charemza gratefully acknowledges financial support of ESRC Grant No. R000 23 1827.