As in many other less developed nations, the imposition of foreign exchange controls promoted the growth of a foreign exchange black market in Jamaica. This article explains the structure and functioning of the market in recent years. Under controls initially imposed in 1954, this market grew to about US$1.7 billion of transaction value per year by 1990. During the 1980s the main participants in the market seeking to buy foreign exchange were Jamaican importers and savers who either were restricted from obtaining foreign exchange in the official market or chose to evade taxes and other rules by using the black market. On the supply side were Jamaican expatriates living abroad, foreign tourists, ganja exporters, and traders using false invoices. Thousands of black market exchangers provided the market-making service, sometimes adding the service of funds transfer overseas. A black market exchange rate model supported this interview-based, institutional description of the market. The foreign exchange black market contributed importantly to the operation of Jamaica’s underground economy during the 1980s. The liberalising of the foreign exchange market and elimination of capital controls in 1991–2 undermined the economic logic favouring black markets. These changes may induce the transfer of a large part of previously underground financial activities into the legally-recorded economy.
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