The Path to Kina Convertibility: An Analysis of Papua New Guinea’s Foreign Exchange Market
Publication | June 2022
This paper recommends an immediate and frontloaded exchange rate depreciation that can encourage an adjustment process to address the foreign exchange shortage in Papua New Guinea.
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Due to a shortage in foreign exchange (forex) since 2015, the central bank of Papua New Guinea rationed forex that led to a large backlog of orders and import compression. The study finds that the policy proposals discussed in the country are inadequate to restore currency convertibility, based on surveys of the forex market structure and analysis of recent market conditions. It recommends more exchange rate flexibility and forex allocation through competitive auctions over the medium term.
Contents
- Introduction
- The Foreign Exchange Market in Papua New Guinea
- Proposed Policy Actions to Address the Shortage
- The Case for Real Exchange Rate Depreciation
- Policy Implications
- Conclusions
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