In years past, Belgium, a participant of the former EMS, and South Africa operated a two-tier, or dual, exchange rate market. The two-tier market was abolished in March 1990 in Belgium and in March 1995 in South Africa

Import and export transactions were handled on the official market, and capital transactions were handled on the financial market, where the "financial" exchange rate was freely floating. Discuss why such a system may prevent speculators from profiting when betting on devaluation.

Speculators will try to profit by buying foreign exchange forward, deposit money in foreign accounts or buy foreign securities, hoping to repatriate capital after the devaluation happens. All these transactions imply selling local currencies in the foreign exchange market. With the double tier market, the "financial" exchange rate immediately reacts to the selling pressure and the local currency instantly depreciates so that the speculators cannot profit from their actions. Of course, exporters and importers can still engage in leading and lagging operations, and they massively did so.