Africa-Press – Namibia. ENOS KAMUTUKWATA
THE BANK OF Namibia (BoN) is expected to announce its monetary policy on 16 February, and economists and analysts are predicting it will increase the repo – just like the South African Reserve Bank (Sarb) did.
This opinion piece was provoked by Aluteni Kamati on Twitter and the comments on The Namibian’s Facebook page on the article titled ‘SA raises repo, Namibia might jump big’.
The two comments that stood out, read “Is Bank of Namibia married to South Africa anoh?”, followed by a laughing emoji and another one, saying “What else don’t we import from SA? Even [monetary policy] decisions are copied”.
Over the years, the BoN has kept the repo rate close, if not on par, with that of the Sarb.
Asking why our central bank ‘copies’ the Sarb is valid, and this is explained by the Common Monetary Area (CMA) agreement which Namibia is a member of.
THE CMA
The CMA is a currency union, of which the members have agreed to share a common currency and a single monetary and foreign-exchange policy.
George Tavlas says the CMA is a fixed exchange rate arrangement that groups four countries, South Africa, Lesotho, Namibia, and Eswatini, and under the terms of the CMA agreement, Lesotho, Namibia, and Eswatini, to issue national currencies, thus, the loti, the Namibia dollar, and the lilangeni.
Respectively, those currencies have been pegged to the South African rand since they have been introduced.
In addition, the rand is a legal tender in each of the three countries, which explains why it can be used to make purchases in Namibia.
BoN economist Postrick Mushendami says the CMA arrangement includes monetary and exchange-rate agreements, and was formalised by Namibia, Lesotho, Eswatini, and South Africa joining a multilateral trade agreement in 1990.
He says the CMA operates on the major principles of a currency board arrangement (CBA), which stipulates that in a CBA, exchange rates in relation to other member states are fixed, capital flows are unimpeded, a pegged country can issue its own currency, and repo rates and the money supply cannot be fully influenced, except by South Africa.
Generally, Namibia’s monetary policy aims to ensure price stability that leans towards sustainable economic growth and Namibia’s monetary policy framework, for example, the repo rate is underpinned by the exchange rate system linked to the rand.
The Bank of Namibia has said this link, which requires that Namibia’s currency in circulation is backed by international reserves, ensures that Namibia imports price stability from the anchor country (South Africa) and under a fixed exchange rate regime, monetary policy remains submissive to the fixed peg.
BENEFITS
Economists Nchake, Edwards and Rankin in their paper agree that the monetary policy credibility of the Sarb has proven positive spillovers by dropping inflation expectations in Lesotho, Namibia, Eswatini (LNE states), and thus a credible link of the LNE states’ currencies, to that of the rand, which consequently serves as a bedrock for them.
The CMA provides far greater benefits to Namibia, and this explains why the BoN is submissive to the Sarb’s monetary policy decisions.
Furthermore, the CMA arrangement has resulted in lower prices/price stabilisations/reduced inflation, reduced trading costs, an upward trajectory in trade volume, cross-border financial transactions, and wider access to South Africa’s financial markets.
With Namibia’s ratification of the African Continental Free Trade Area, we should welcome regional economic integration and lean in the direction of an African Monetary Union or Southern African Development Community/Southern African Customs Union Monetary Area with one currency.
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