Role of the interbank foreign exchange market in maintaining the stability of the domestic currency
Role of the interbank foreign exchange market in maintaining the stability of the domestic currency

Summary/Abstract: The main goal of this paper is to evaluate the current foreign exchange market setup, with a particular focus on the organization of the interbank foreign exchange market in the Republic of Macedonia. The stability of the domestic currency is particularly important for the Macedonian economy, having in mind the selected monetary strategy of exchange rate, targeting for achieving the price stability. Hence, the first part of the paper discusses the openness, the euroization, degree of financial integration and the transmission effects of the exchange rate movements on the domestic economy as main determinants of the monetary strategy. Further on, taking into account the volume and characteristics of foreign exchange inflows and outflows in Macedonia, particular attention is paid to the interbank foreign exchange market, its organizational setup, and the role of the National Bank in maintaining the stability of the domestic currency. The analysis in the paper leads to the conclusion that while the turnover on the interbank foreign exchange market is still relatively small, it has a significant influence on the formation of the exchange rate on the overall forex market and has a strong signaling role for the Macedonian economy.

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