Currency convertibility and payments arrangements between the common monetary area and the preferential trade area for Eastern and Southern African states

This thesis analyses the impediments of inconvertible currencies on intra-regional trade within the Eastern and Southern African region. Currency inconvertibility is a non-tariff trade barrier which limits and distorts international trade expansion. Therefore, alternative arrangements that may be used in order to remedy this problem are considered. Exchange rate misalignment is identified as a major cause of currency inconvertibility. It is shown that the implementation of macroeconomic policies and exchange rate regimes which are not complementary cause exchange rate misalignment resulting in balance of payments disequilibria leading to currency inconvertibility. Since the preconditions for transformation to full currency convertibility have not been met by most countries in the region this thesis suggests a mechanism that will enable the use of local currencies for intra-regional trade (partial currency convertibility). The most viable arrangement under the prevailing conditions in the Eastern and Southern African region is the reserve fund to which member countries contribute a fraction of their international reserves. This contribution will be determined according to the levels of intra-regional trade in which they engage. This arrangement will guarantee that even if a member state cannot honour its payments' obligation it will be able to draw on the facility to make payment. The advantages of this facility are that it will guarantee that payments for intra-regional trade will be made and that the contributions by member countries will be more affordable than the other arrangements as well as its potential for assisting in creating closer economic relations in the region. The thesis concludes, however, that member countries should be encouraged to move towards full currency convertibility and hence an arrangement for purposes of intraregional currency convertibility should be strictly transitionary.

Grantor dc:publisher.institution

School of Economics

Year dc:date.issued

1995

Author dc:creator

• Myerson, Jonathan

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/17473

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/17473