_-5 -_ for cross-country comparisons. In three of the countries, different auction types follow consecutively, allowing within-country comparisons of auction design. in this section we compare and contrast auction designs and outcomes across countries, and motivate hypotheses concerning the effect of auction design on the achievement of policy objectives such as stabilization of the exchange rate, and unification of multiple exchange markets. Some of these hypotheses will be tested in a second companion paper (Aron and Elbadawi, 1994).

# 2.1 Duration and frequency of the aucfions

The various auction experiments have spanned widely different periods. In Ghana, weekly auctions of varying design were held over almost 6 years, and then replaced by an interbank markiet, with decentralization of the sale of most export receipts. The same result has been achieved in Uganda, although after a considerably shorter period of auctions (about 21 monits). In both these countries the auctions proceeded fairly smoothly, and the rules were gradually liberalized over time. By contrast, an IS-month experiment in Zambia with 68 weekly auctions, saw restictions tightened over time and frequent rle changes. The auctions were suspended for three months; subsequently a further 6 auctions were held, but a speculative run on the kwacha saw the system abandoned, with a return to a fixed exchange rate regime. In Nigeria, auctions have similarly yielded mixed results, and bave been subject to considerable rule changes. Auctions were held over six years, weekly for the first 67 auctions, during 1986-88; then daily during 1989-90, in conjunction with an interbank market; a weekly system was **again** initiated early in 1991, and continued untdl early 1994, when the exchange raze was fixed. The competitiveness of the 1989-90 auctions in Nigeria is in doubt: participants were guarateed a mxmum aDlocation regardless of their bids. We therefore examine only the 198648

## periodL

There may well be a relationship between the duration of the auction regime and the success of the outcome, though this will obviously depend on the initial depth of the financial and foreign exchange markets. Admirers of the Ugandan and Ghanaian outcomes suggest that a slow and unambitious start, tgther with gradual expansion of the aactions through liberalization of the rdes, served both to facilitate institution-building and learning, and to enhance the credibility of the reform. However, auction stability in these countries is also importantly related to other design features, such as tansparency and the use of a reserve price, both of which were hallmarks of the Ugandan and Ghnaiaa auctions.

A higher fteucn-x of auctions would seem desirable since this could smooth disbursement, make fims' production more flexible, and probably encoura investmenL Furte, the speculadve behavior or over-bidding that might occur in more sticky markets would be curmiled. On the other hand, a high equency auction market may be so tiin that the marginal price would probably not be a useful guide to the exchange rate, and would in any case be rather volatile between auctions. Further, there may be increased inentives for collusive behavior amongst bidders. For the SSA auctions under consideration, weekly or bi-weekly frequencies were employed, and in general the demand for foreign exchange exceeded the supply in fairly deep markets.