Common Monetary Area

Member states of the Common Monetary Area (CMA)

The Common Monetary Area (CMA) links South Africa, Namibia, Lesotho and Swaziland into a monetary union. It is allied to the Southern African Customs Union (SACU).

The main purpose of this trade is that all of the parties can have the same development and equitable economic advance so they can be treated as a whole.

Although the South African rand is legal tender in all states, the other member states issue their own currencies: the Lesotho loti, Namibian dollar and Swazi lilangeni. However, these are exchanged at par with the rand and there is no immediate prospect of change. Foreign exchange regulations and monetary policy throughout the CMA continue to reflect the influence of the South African Reserve Bank.

Of the SACU members, only Botswana is currently out of the CMA, having replaced the rand with the pula in 1976. Botswana wanted to implement its own monetary policy and to adjust the exchange rate in case of any future problem in the economy that will affect their economy as well.

History

The CMA, enacted in July 1986,[1] originated from the Rand Monetary Area (RMA), which was established in December 1974;[2] the signatories of the latter were South Africa, Lesotho, and Swaziland. [3] In that year Swaziland and Lesotho stablished their own national currencies, now called the lilageni and the loti, respectively. In 1980 Lesotho established its own central bank and began issuing its national currency at a one to one rate to the rand.

In 1989 the CMA changed its exchange restrictions because of some limitations in the conversion of balances consequence of the termination of the agreement of one party. The CMA was replaced by the present Multilateral Monetary Area (MMA) in February 1992, when Namibia formally joined the monetary union. In 1993 Namibia issued its own currency, the Namibian dollar.

In 2002 a new revenue-sharing formula was introduced, which included a development component. In 2003 Swaziland reauthorized the use of the rand as legal tender in the interest of facilitating exchange between these countries.

Institutional Framework

The currency agreement made between these countries is one of the most important issues in the agreement. As issued before, each country has the right to have their own national currencies. These currencies are only legal tender in their own countries. However, the South African Rand is tender throughout the CMA.

According to the agreement the CMA countries can have access to the South African Financial Markets, but only under some conditions. They can only have access to the money and capital markets through prescribed investments or approved securities that can be held by Financial Institutions in South Africa accordance with prudential regulations between the LNS countries.

The Compensation Payments is based on the formula equal to product and the volume rand of estimated to be in circulation in the member country concerned. The ratio is of 2/3 of the annual yield according to the most recent South African government stock. This ratio was stablished on the assumption of a portfolio of reserve assets comprising both long-term and short- term maturities, assuming that it would be less than long-term.

Gold and Foreign Exchange Transactions are two issues in the trade. The matter is that they can authorize foreign transactions of local origin. These transactions will have the same regulations as the ones effect from transactions between the CMA and South Africa. Gold and Exchange receipts from locals are requirements for the local surrender. Also there are not restrictions of transactions between international transactions and non- residents.

See also

Literature

  • Jian-Ye Wang; Iyabo Masha; Kazuko Shirono; Leighton Harris (2007-07-01). "The Common Monetary Area in Southern Africa: Shocks, Adjustment, and Policy Challenges" (PDF). IMF Working Paper Series (07/158).

References

  1. ↑ "Archived copy". Archived from the original on 2006-11-18. Retrieved 2008-10-15. SWAZILAND BUSINESS YEAR BOOK 2005
  2. ↑ "Archived copy". Archived from the original on 2006-11-21. Retrieved 2008-10-15. African Studies Thesaurus
  3. ↑ "South Africa’s experience of regional currency areas and the use of foreign currencies", Lambertus van Zyl


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