Shadow Exchange Rates for Project Economic Analysis: Toward Improving Practice at the Asian Development Bank

Publication | February 2004

This note examines the Asian Development Bank's (ADB) practice in estimating and using shadow exchange rate in the economic analysis of projects. Recognizing the limited application of the method suggested in ADB's Guidelines for the Economic Analysis of Projects, this note suggests a simple trade-weighted approach that corrects for at least the minimum level of distortions in the economic price of foreign exchange. This paper also echoes the recommendation of ADB's Economic Analysis in 2002: A Retrospective for the periodic reassessment of the shadow exchange rate as part of country strategy and program formulation.

Contents 

  • Foreword
  • Abstract
  • Introduction
  • Suggested Methodologies Based on ADB Guidelines
  • ADB Practice in Estimating and Using SERFs or SCFs
  • Application of Simple Trade-Weighted Methodology and Results
  • Conclusions and Recommendations
  • Appendixes
  • References