Dominican Republic and Haiti: Country Studies

Dominican Republic: The Economy
The Dominican Republic peso (RD$) has been issued by the
BCRD since 1948 and was officially on par with the United
States dollar for decades. The peso underwent a slow process
of devaluation on the black market from 1963 until the government
enacted a series of devaluations during the 1980s. A 1978
Dominican law had actually required that the peso equal the
dollar in value, but as economic conditions worsened, authorities
abandoned this policy. The most important change in
Dominican exchange policy came in 1985: the Jorge Blanco
government, acting in accordance with the terms of an IMF stabilization
program, floated the national currency in relation to
the dollar, thereby temporarily wiping out the previously extensive
black market. The floating peso fell to a level of US$1 =
RD$3.12, an official devaluation of more than 300 percent that
proved to be a major shock to the economy. Preferential
exchange rates, however, remained in force for oil imports and
parastatal transactions. The devaluation caused higher domestic
prices and burdened many poor citizens, while it improved
the country's export sector through newly competitive prices.
Rising inflation, balance-of-payments deficits, and foreign debt
compelled further devaluations after 1985. The peso stabilized
somewhat at US$1 = RD$6.35 by 1989, after bottoming out at
nearly US$1 = RD$8 in mid-1988. As a result of these fluctuations,
the Monetary Board experimented during the 1980s with
a multitier fixed exchange rate, a floating exchange rate, and
other systems. By 1988 it had settled on a fixed rate subject to
change based on the country's export competitiveness and
domestic inflation. An important provision of the exchangerate
policy of 1988 prohibited currency transactions at the
country's exchange banks and channeled all foreign currency
transactions into the commercial banks under BCRD supervision.
In February 1991, a new dual exchange-rate system authorized
the BCRD to set the rate for official transactions and commercial
banks to conduct operations at a free-market rate. Four
years later, the two systems were unified, with the exception of
such government transactions as debt servicing and importing
fuels. The rates for these transactions were unified in 1997 on a
free-market basis and at an initial rate of US$1 = RD$14. A gap
between the two currencies, however, forced an adjustment in
the official rate to US$1 - RD$14.2. After Hurricane Georges,
the official rate dropped further to US$1 = RD$15.46; the commercial
rate was US$1 = RD$16 in late November 1999.
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