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The Choice of Monetary and Exchange Rate Arrangements for a Small, Open, Low-Income Economy: The Case of Sao Tome and Principe
Abstract
This paper assesses São Tomé and PrÃncipe's monetary and exchange rate arrangements in light of the country's monetary history and the relevant experience of comparable countries in Africa. The study highlights several structural characteristics of São Tomé and PrÃncipe including its very small size, high degree of openness, extensive use of foreign currencies, and inflexible product and factor markets in the consideration of an appropriate monetary and exchange regime. Firmly anchored currency arrangements, defined in this paper to include memberships in monetary unions or hard pegs, are found to be preferable to the status quo of a managed float. The paper applies statistical methods and takes into account other factors to identify the appropriate anchor currency. It stresses that fiscal discipline and prudent debt management are the main prerequisites for a firmly anchored currency arrangement.
... Reducing the cost of international transactions is significant in achieving sustainable private sector-led growth. For these countries the tides of globalisation and regional integration have pushed the choice of exchange rate to the forefront of the policy agenda (Wang et al, 2008). ...
... One USD was equal to 3.75 Saudi riyals. If the central bank of Saudi Arabia had US dollar reserves of 100 billion, then it could issue 350 billion Saudi riyals (Wang et al, 2008).. ...
... Choosing an exchange rate regimes depend mostly on the characteristics of the country, as well as the nature of the crisis affecting the domestic economy (Stockman, 1999). Wang et al, (2008) in their study of 25 emerging-market economies during 1973-1998, found that floating exchange rate regimes were more associated to the encouragement of economic growth than other regimes, but only in countries which were relatively open to international capital flows. Huang and Malhotra (2004) found that a floating exchange rate regime would be an appropriate choice for medium and large industrialized countries, because those countries are more financially developed and their economy more diversified. ...
This study examines different theoretical perspectives in choosing exchange rate
regimes as well as providing empirical evidence on the macroeconomic performance of
each regime. A fixed exchange rate regime may have better performance for some
countries, while a flexible exchange rate regime may be better for other countries. So it
cannot be said that fixed or flexible is better all the time and in every country.
Therefore, the characteristics of economic are significant to choose right exchange rate
regimes.
This dissertation attempts to examine the main advantages and disadvantages of fixed
exchange rate regime in the Gulf Cooperation Council (the United Arab Emirates, the
State of Bahrain, the Kingdom of Saudi Arabia, the Sultanate of Oman, the State of
Qatar, and the State of Kuwait). The characteristic of GCC economy will be examined
in order to estimate whether the fixed exchange rate regime is appropriate for GCC
countries or not.
The study concludes that the GCC states would benefit more from flexible exchange
rate regime, because they will be able to use monetary policy to resolve internal and
external balance.
... The estimation result of equation 2 as presented in Table 2 shows that all variables are statistically significant with level of confidence 1 per cent or 5 per cent. (Wang et al., 2008) is negative as expected, means that higher will result in a fall in export value. For example, when the domestic currency is depreciated, it implies that importing becomes more expensive. ...
Salah satu tujuan dari pelaksanaan AFTA adalah untuk mengurangi hambatan perdagangan dengan mengurangi tarif impor antar anggota ASEAN dengan asumsi bahwa jika tarif lebih rendah atau nol, seharusnya terdapat peningkatan nilai perdagangan antara anggota ASEAN. Penelitian ini menguji apakah pelaksanaan AFTA memiliki dampak pada kinerja ekspor Indonesia dan kontribusi kendala di belakang perbatasan (behind the border constraints) terhadap kinerja ekspor Indonesia seperti administrasi bea dan cukai. Penelitian ini menggunakan pendekatan model gravitasi dengan analisis stochastic frontier yang berbeda dari penelitian-penelitian sebelumnya tentang kinerja perdagangan Indonesia yang menggunakan estimasi OLS. Hasil penelitian menunjukkan bahwa, secara empiris, GDP , jarak, populasi, nilai tukar, tarif, dan keanggotaan di ASEAN signifikan mempengaruhi perdagangan Indonesia dengan negara partner. Lebih lanjut, hasil estimasi stochastic frontier menunjukkan bahwa kendala di belakang perbatasan menurun setiap tahunnya. Namun, ekspor Indonesia masih under trade dengan semua negara ASEAN yang mengindikasikan rendahnya pemanfaatan AFTA. Di sisi lain, ekspor Indonesia over trade dengan Cina dan hampir berada di tingkat yang optimal dengan Amerika Serikat, Jepang, dan Belanda. Implikasi dari penelitian ini adalah bahwa pemerintah Indonesia harus mempromosikan lebih banyak ekspor dengan negara-negara ASEAN untuk mencapai tujuan dari deklarasi AFTA dua dekade lalu. One objective of the AFTA implementation is to reduce trading constraints by reducing import tariffs among ASEAN’s members with the assumption that if tariffs are lower or zero, there should be an increase in intra-trading value among ASEAN members. This study examines whether the implementation of the AFTA has had any impact on Indonesia’s export performance and ‘behind the border’ constraints contribution in Indonesia’s exports such as customs administrations. The study uses the gravity model approach with a stochastic frontier analysis which is different from previous research about Indonesia’s trading performance that uses OLS estimation. The results show that, empirically, GDP, distance, population, exchange rate, and membership in ASEAN significantly affect Indonesia’s trading with partner country. Furthermore, stochastic frontier analysis’ results show that ‘behind the border’ constraints decrease overtime. However, Indonesia’s exports is under trade with all ASEAN countries which indicates the low utilisation of AFTA. On the other hand, Indonesia’s exports are over trade with China and almost at optimal level of exports with the US, Japan, and the Netherlands. The implication of this study is that the Indonesian government should promote more exports with ASEAN countries to accomplish the objectives of the AFTA declaration two decades ago.
... São Tomé e Príncipe posiciona-se num ponto estratégico sendo também um importante ponto de comunicação na futura exploração de petróleo no Golfo da Guiné (OMT, 2001: 55-56 Turismo em São Tomé e Príncipe Segundo a Organização Mundial de Turismo (2001), São Tomé e Príncipe tem um forte potencial em termos de imagem, devido às características das suas praias tropicais, cultura, etc. No entanto, este sector ainda se encontra pouco desenvolvido e não produz receitas líquidas para o país, devido à sua grande dependência da importação de bens e serviços (Wang, et al, 2008 No entanto, São Tomé e Príncipe, apesar de, no quadro global de África, se encontrar numa situação estável, tem constrangimentos que impedem o desenvolvimento do turismo, nomeadamente a inadequação das suas infra-estruturas rodoviárias e aeroportuárias, espaço aéreo pouco aberto, fortes carências no financiamento para projectos de desenvolvimento hoteleiro motivados por um clima de incerteza para os investimentos a longo prazo e uma imagem de destino de risco motivada pelos casos de cólera e paludismo (OMT, 2001: 55-56). ...
The current study summarizes a unique green process for the synthesis of gold nanoparticles by simple treatment of gold salts with aqueous extract of Nepenthes khasiana (NK)-a red listed medicinal plant and its characterization. Study on the effect of different process parameters like temperature, pH and stirring on surface and stability characteristics has been demonstrated. Formation of GNPs was visually observed by change in color from colorless to wine red and characterized by UV-Visible spectroscopy, FT-IR spectroscopy, Zetasizer, X-RD, ICP-AES, SEM-EDAX, AFM and TEM. In vitro stability studies of gold colloidal dispersion in various blood components suggest that, NK mediated GNPs exhibit remarkable in vitro stability in 2% bovine serum albumin, 2% human serum albumin (HSA), 0.2M histidine, and 0.2M cysteine but unstable in 5% NaCl solution and acidic pH. Biocompatibility of NK stabilized GNPs against normal mouse fibroblasts (L929) cell lines revealed nontoxic nature of GNPs and thus provides exceptional opportunities for their uses as nanomedicine for diagnosis and drug therapy. The role of antioxidant phytochemicals (flavonoids and polyphenols) of NK extract in synthesis of biocompatible and stabilized GNPs was demonstrated by estimating total flavonoid content, total phenolic content and total antioxidant capacity of extract before and after formation of GNPs. Fast and easy synthesis of biocompatible GNPs possesses unique physical and chemical features which serve as an advantage for its use in various biomedical applications. The overall approach designated in the present research investigation for the synthesis of GNPs is based on all 12 principles of green chemistry, in which no man-made chemical other than the gold chloride was used.
MgO whiskers with diameters of 100-300 nm and lengths of 1-3 mu m were formed during in-situ sintering of a mixture with 15:4 mole ratio of magnesium alloy powder AZ91D to H3BO3 in Ar atmosphere at 800 degrees C. The magnesium alloy powder AZ91D evaporates and reacts with trace oxygen to form MgO vapor as the temperature exceeds the melting temperature of Mg and a low supersaturation is required for the growth of MgO whiskers. The growth of MgO whiskers begins at about 700 degrees C. During the growth process of MgO whiskers, the preformed MgO films act as substrates and both the melted B2O3 and magnesium alloy on the surface of magnesium alloy powder AZ91D serve as catalysts. The growth process of MgO whiskers is dominated by a vapor-liquid-solid (VLS) mechanism.
To obtain the mathematical model of wave propagation in a better performance, a new set of Boussinesq equations with full nonlinearity approximating to the order O(μ 2) was developed by enhancing an existing set of Boussinesq equations. Different from the traditional enhancement of Boussinesq-type equations, all the nonlinear terms were retained, improving both the dispersion performance and nonlinear performance of the improved equation. This equation could be simplified to a set of second-order Boussinesq-type wave equations expressed by depth-averaged velocity. The effect of the enhancement on the second-order nonlinearity and third-order nonlinearity of the equation was analyzed theoretically and compared with that of the traditional enhancement method. Theoretical results reveal that the Boussinesq model enhanced with higher order nonlinear terms has better nonlinear properties. Next, a high-precision numerical equation model was built based on a non-staggered grid system using the finite difference method. The numerical simulation was conducted for regular wave propagation over a submerged breakwater, and the numerical results were compared with the experimental data to demonstrate the influences of the nonlinearity and two types of enhancements on the numerical result. Results show that the Boussinesq model with higher order nonlinear terms can more accurately simulate the nonlinear evolution of water waves, and the demonstrated enhancement can be used as a reference for improving the nonlinear properties of similar Boussinesq-type models.
AFM, XRD, zeta (ζ) potential measurement and spectroscopic ellipsometry were used for characterization of thin (20nm) Au films sputtered onto polyethyleneterephthalate (PET). Sputtered Au film shows significantly different surface morphology and roughness in comparison with pristine PET. From XRD measurement of 20nm thick sputtered Au layers it was found that Au crystalizes preferentially in (111) direction with lattice parameter of a=0.40769nm, density of ρ=19.338gcm−3 and lattice stress of about 230MPa. Higher surface conductance of Au/PET by ζ-potential measurement was found. Au layer thickness of 19.4nm determined from spectroscopic ellipsometry was in good agreement with the AFM estimated value of 20nm.
This article reports on the growth of single crystal Sn3O4 nanobelts and SnO by a carbothermal reduction process in two different regions of a furnace tube. Even though intermediate tin oxide compounds (Sn3O4) have been observed experimentally, the study of structures based on them is a challenging task. Characterization data allowed us to propose that Sn3O4 nanobelts grew by vapor–solid mechanism while SnO grew by self-catalyst vapor–liquid–solid mechanism. Electrical measurements of a single Sn3O4 nanobelt were performed at different temperatures, revealing undoped semiconductor characteristics.
In recent years, there has been tremendous progress in the research and development of printable electronics on mechanically flexible substrates based on inorganic active components, which provide high performances and stable device operations at low cost. In this regard, various approaches have been developed for the direct transfer or printing of micro- and nanoscale, inorganic semiconductors on substrates. In this review article, we focus on the recent advancements in the large-scale integration of single crystalline, inorganic-nanowire (NW) arrays for electronic and sensor applications, specifically involving the contact printing of NWs at defined locations. We discuss the advantages, limitations, and the state-of-the-art of this technology, and present an integration platform for future printable, heterogeneous-sensor circuitry based on NW parallel arrays.
Defect engineering involves manipulating the type, concentration, spatial distribution, or mobility of defects within a crystalline solid. Defect engineering in semiconductors has become much more sophisticated in recent years, driven by the need to control material properties at small length scales. The present article describes recent trends in defect engineering across several nano-oriented applications, beginning with Si-based integrated circuits and extending into non-Si microelectronics and especially into oxide semiconductors for sensors and photocatalysis. Special focus fixes upon physical mechanisms that have been little exploited up to now, but show significant promise as new means for controlling defect behavior, including low-energy ion bombardment, surface chemistry, and photostimulation. Systems-based methods for parameter estimation offer considerable promise for helping to understand the complex diffusion and reaction networks that characterize defect behavior in most prospective applications.
The synthesis of metal nanoparticles of different sizes, shapes, chemical composition and controlled monodispersity is an important area of research in nanotechnology because of their interesting physical properties and technological applications. Present work describes an eco-friendly method for the synthesis of spherical gold nanoparticles using aqueous extract of Macrotyloma uniflorum. The effects of quantity of extract, temperature and pH on the formation of nanoparticles are studied. The nanoparticles are characterized by UV-visible spectroscopy, transmission electron microscopy (TEM), X-ray diffraction (XRD) and FTIR analysis. The high crystallinity of nanoparticles with fcc phase is evident from HRTEM images, SAED and XRD patterns. Synthesized nanoparticles have size in the range 14-17nm. FTIR spectrum indicates the presence of different functional groups present in the bio-molecule capping the nanoparticles. The possible mechanism leading to the formation of gold nanoparticles is suggested.
Should Africa work toward a single currency? Can the European Union be a model for African nations? The goal of a common African currency has long been a pillar of African unity, a symbol of the strength that its backers hope will emerge from efforts to integrate the continent. A common currency could increase economic stability, provide greater insulation for central banks from pressures to provide monetary financing, and lower transactions costs. But there are many pitfalls along the road to achieving those goals. In The Monetary Geography of Africa, Paul Masson and Catherine Pattillo analyze the current situation and prospects for further integration. Since the beginning of decolonization some fifty years ago, African nations have suffered setbacks preventing them from enjoying the benefits of economic development. With time, the continentââ¬â¢s leaders have increasingly recognized the need to change inward-looking and state-dominated economic policies. Now a stronger consensus favors regional cooperation and outward-looking and efficient policies, as well as a move to make leaders accountable for their shortcomings. In July 2002 a summit of African leaders took a major step by heralding a new and invigorated African Union (replacing the Organization of African Unity), together with a comprehensive plan to bring about economic and political integration. Another sign of this new consensus has been the formulation of regional integration initiatives across the continent, including those geared to monetary unions, or groupings of countries sharing a common currency and central bank. But obstacles to implementation may prevent some from going forward fully or, if they do, prevent them from producing gains of economic welfare. Difficulties include asymmetries among countries especially in their terms of trade and fiscal discipline. Lack of fiscal discipline could ruin plans to create a regional central bank that would lead to a stable currency and low inflation. The authors maintain that the goal of creating a single African currency is not feasible or desirable, but that existing monetary unions, such as the CFA franc zone in western and central Africa, offer a base on which to build. More important for the continentââ¬â¢s well-being is to attack the more fundamental problems of corruption and governance.
The authors compare economic performance in the CFA (franc) zone with the economic performance in similar countries outside the CFA zone in recent years. The results of their model estimates indicate that the competitive position for CFA members was weaker in the second half of the 1980s than in the first half and weaker than in non-CFA countries in terms of output growth as well as the performance of exports, investment, and savings. The exception was domestic inflation: the CFA fared better on that front. Results for a longer-term comparison are somewhat mixed. The CFA zone performed better than the others in exports, domestic savings and investment, and inflation, but failed in the long run to distinguish itself in terms of economic growth. The authors use a modified control group approach to compare changes in macroeconomic indicators in the CFA countries with those in countries elsewhere in sub-Saharan Africa and similar low-income developing countries. They control for initial conditions, changing exogenous internal and world environment, and policy stance. Their approach allows for a formal testing of whether zone membership is a random choice. The implication of randomness is that the CFA zone economies would have performed the same as the rest of sub-Saharan Africa, for example, if there had been no zone. Their results show the assumption of randomness to be valid only for GDP growth and inflation.
Africa has more countries than any other continent, and hence the largest number of potential monetary and exchange rate arrangements. This paper looks at whether the existing highly fractured monetary arrangements in Sub-Saharan Africa correspond to what might be expected from the theory of optimum currency areas. This is done by analysing both the size and correlation of real disturbances across countries and the level of intra-regional trade. The results indicate little evidence that Sub-Saharan African countries would benefit in the near future from larger currency unions. Copyright 1997 by Oxford University Press.
In this paper we fit a vector error correction model (VECM) in output and prices to data from 10 countries of the CFA Franc Zone. This model allows for various cross-country interactions in both the short run and the long run. The VECM parameters are used to estimate persistence profiles of different kinds, in order to identify the degree of homogeneity in the way in which the countries respond to macroeconomic shocks. In this way we can shed light on questions about the likely size of the costs incurred from these countries' membership of a monetary union. Copyright 2004, Oxford University Press.
In this paper we focus on cycles and trends of some macroeconomic and housing market variables representative of the French economy. In a first part, we empirically show that cycles in the housing sector, measured by housing prices, housing starts, building permits, sales or residential investment, are strongly correlated to GDP cycles with a lead lying between of one and four quarters, suggesting thus that a monitoring of housing fluctuations could bring useful information for macroeconomic forecasting. Interestingly, this result is robust to the various considered approaches. Moreover, it seems that the housing sector long-term trend possesses its own dynamics, quite different from the global French economic activity. Thus, in a second part, we review various structural factors that could drive housing market developments in France in the future.
This study assesses the experience of the Common Monetary Area (CMA) based on available empirical evidence over the last two decades. It pays particular attention to member countries' adjustment to economic shocks in recent years and the inter-country linkages, including the spillover effects of policies. The paper draws the main lessons from the CMA experience, identifies key policy challenges, and discusses the issues facing the member countries in their efforts to achieve sustained growth. Implications for further economic integration in a broader regional context are also noted.
This paper compares different nominal anchors in the case of a fixed exchange rate regime for the future single regional currency of the Economic Community of the West African States (ECOWAS). We study the anchor choice when the countries focus the exchange rate policy to promote internal and external competitiveness. We consider four foreign anchor currencies: the us dollar, the euro, the yen and the yuan. Using a counterfactual analysis, we find little support for a dominant peg in the ECOWAS zone. In attempting to select an anchor currency, as regards internal and external competitiveness, several aspects need to be taken into consideration: the variability of the commodity prices, adverse downward trend movements, the stability of export revenues and the invoicing currency. A discriminating element is the direction toward which the anchor currency moves, while the world price of commodities evolves in the opposite direction. Our simulations show that the countries would not agree on the same anchor if they pursue several goals: maximizing the export revenues, minimizing their variability, stabilizing them and minimizing the real exchange rate misalignments from its fundamental value.
In January of this year, Jamil Mahuad, then president of Ecuador, startled his compatriots by proposing to eliminate the national currency, the sucre. Instead, Mahuad advanced, the U.S. dollar would replace the sucre for all purposes. Although a popular uprising forced him out of office a week later, the succeeding government has actually implemented his proposal and recently announced that U.S. dollars will have completely replaced the sucre by September 2000. ; The question remains as to whether the Ecuadorian plan will be successful and, more generally, whether other countries will follow Ecuador's lead. But one thing is clear: proposals to replace the domestic currency with the U.S. dollar, or to "dollarize" the economy, have taken center stage in Latin America and other developing regions. To illustrate why dollarization has risen from neglect to such a central role, this article discusses the currently fashionable proposals for dollarization in Latin America and other developing regions. ; The article places special emphasis on identifying and analyzing various arguments for and against dollarization in the light of existing economic theory and evidence. The author compares the relative significance of the costs and benefits. Observing that measurement problems are significant, he concludes that, remarkably, the popular belief that dollarization is a desirable reform has been reached in spite of widespread uncertainty about its economic benefits.
This study assesses the degree of financial integration in the West African Economic and Monetary Union (WAEMU). The structure of the financial sector and its institutional arrangements indicate that financial integration is well advanced in some aspects. Common and foreign ownership of banks is very high and cross-border transactions are frequent in the government securities markets. Common institutions help achieve a high degree of similarity of rules. There is nonetheless scope for further financial integration as indicated by persistent deviations from the law of one price, limited cross-border bank transactions, and differences in treatment. Policy measures could therefore help achieve greater financial convergence.
Financial services with global reach are a highly information-intensive business. In it, the ability to deliver reliable price formation, global liquidity, and network benefits is increasingly critical for the choice of currency denomination. Conversely, the exchange value and prospective usefulness of small currencies becomes less certain, and transaction costs for them may rise. Economic instability is invited as currency and portfolio substitution with the dominant international currency denomination increase the likelihood of currency mismatches and financial crises. In view of these failings of many of the financially small currencies, the number of currencies worldwide well may shrink greatly in the decades ahead.
Drawing lessons mostly from contemporary developments, this book analyzes current approaches to overcoming excessive monetary division within integrating regions. It focuses on the effects of monetary or currency unions on trade among members and on their financial development and stability. In the process, contributors analyze the promise and subversion of hard pegs such as that attempted by the currency board of Argentina. They also examine unilateral dollarization -- adopted in a few countries formally, and in many more informally without giving up the local currency -- and multilateral monetary union in Europe. There the euro functions as an innovative, non-hegemonic form of internationally shared and co-managed fiat money that will also be adopted by the 2004 class of European-Union accession countries in coming years.
This paper examines the macroeconomic consequences of selecting alternative exchange rate regimes of countries in three regions. In particular, it studies whether Austria, the Netherlands, Canada and New Zealand made the right monetary regime choices between 1970 and 2000. We focus on the role of asymmetric shocks as a core determinant for the evaluation of various monetary regimes by studying the impact of a hard peg, a full monetary union, or floating exchange rates (with or without inflation targeting) on selected macroeconomic variables. Estimates of structural VARs are used to ascertain if the countries under review meet the essential ingredients of an Optimum Currency Area (OCA) and thus are candidates for a monetary union. Counterfactual experiments help to study economic outcomes had these countries pursued alternative monetary strategies. We conclude that a floating regime with inflation targeting is best for Canada, a monetary union with Australia is the best course of action for New Zealand, and monetary union is the appropriate choice for the Netherlands while there are reasons to believe that Austria might have been better off with a floating regime, at least for a time. We also find that good monetary policy is not confined to any particular exchange rate regime and that political and institutional factors weigh heavily in this decision. Copyright © 2003 John Wiley & Sons, Ltd.
Thirteen African nations are engaged in two monetary unions with France, often referred to as the CFA Zone. Despite the acknowledged benefits of Zone membership — a convertible currency, pooled resources and greater monetary and fiscal “discipline” — several observers have questioned whether particular aspects of the Zone such as the lack of autonomy of the two Central Banks and the surrender of the exchange rate as a policy instrument have impeded its members' growth. This paper addresses that question by testing whether CFA Zone countries had different GNP growth rates from selected “comparator” countries during 1960–1982. Results show that CFA countries grew significantly faster than comparator Sub-Saharan African countries but usually slower, and often significantly so, than the whole sample of developing countries. When the comparison is made by subperiod (before and after 1973), CFA countries' performance vis-à-vis that of their comparators improved during the 1973–1982 period, casting further doubt on the claim that the monetary union is not functioning adequately.
This paper studies the introduction of an exchange rate between Ireland and the UK in 1979 to shed light on the effects of a common currency on the composition of international trade. No evidence is found from time series or panel regressions that the change of exchange rate regime had a significant effect on Anglo–Irish trade. This finding is consistent with previous studies of currency unions between larger, developed countries but conflicts with findings based on more heterogeneous country groupings. The reasons for this discrepancy are discussed.
This paper, complementary to that of Devarajan and de Melo, deals with the development strategies and performances of 12 franc zone African countries, 11 of them gathered in two monetary unions, during 1960–1981. Beside the actual rate of growth, the “relative growth performance” is considered; this performance, measured as a residual of a regression on exogenous factors (factors independent of economic policy), appears to be close to the average performance of other developing countries and better than that of other African countries. The results are explained by the direct influence of the foreign exchange regime of the zone and by its impact on economic policy. Economic policies of individual countries show, however, some substantial degree of autonomy.
Does leaving a currency union reduce international trade? We answer this question using a large annual panel data set covering 217 countries from 1948 through 1997. During this sample a large number of countries left currency unions; they experienced economically and statistically significant declines in bilateral trade, after accounting for other factors. Assuming symmetry, we estimate that a pair of countries that starts to use a common currency experiences a near doubling in bilateral trade.
The paper discusses the advantages and disadvantages of the full dollarization option and offers a few stylized facts and conclusions regarding the effects of full dollarization. On one hand, a full-dollarized economy delivers an impressive inflation performance and may even reduce the impact of external confidence shocks, although not external real shocks. On the other hand, full dollarization does not guarantee fiscal discipline neither the elimination of currency risk precludes default risk or the high volatility of sovereign spreads. In addition, it is not clear whether the reduction in domestic interest rates is the consequence of full dollarization or the competitive internationalized banking system.
Africa has more countries than any other continent, and hence the largest number of potential monetary and exchange rate arrangements.
This paper looks at whether the existing highly fractured monetary arrangements in Sub-Saharan Africa correspond to what might
be expected from the theory of optimum currency areas. This is done by analysing both the size and correlation of real disturbances
across countries and the level of intra-regional trade. The results indicate little evidence that Sub-Saharan African countries
would benefit in the near future from larger currency unions.
This paper considers the extent of retail banking integration in the Communauté Economique et Monétaire d'Afrique Centrale (CEMAC) and the level of bank competition at the regional level. Using a mix of quantitative and qualitative indicators, the paper finds some evidence of price convergence in average interest rate spreads. However, this observed fact is not supported by an increase in cross-border flows in retail loans and deposits, and price convergence may merely reflect excess liquidity in the region. Other data also indicate that bank competition within the CEMAC as a region is limited, complementing the findings on integration. Addressing shortfalls in legal and regulatory frameworks, infrastructure, and markets would facilitate integration.
This paper seeks to elucidate the debate over currency union in Africa. The paper examines whether empirical investigation points to the gradual emergence of currency blocs. Based on the historical data on inflation, trade, and the comovements of prices and outputs, I argue that the emergence of large-scale currency blocs in Africa will follow a gradual path and that this dynamic does not lead to the emergence of a single continental currency at this time. Rather, the pattern which emerges seems to suggest three blocs: one in West Africa, a second around South Africa, and a third in Central Africa. Although little evidence is found supporting the emergence of a single African currency at this time, the emergence of an African currency union is not necessarily precluded, since the ultimate decision to surrender a nation's monetary policy to a supranational institution is not made based solely on economic considerations. I then address the issue of a possible anchor for the union, were it to emerge and opt for an anchorage. I find- based on the trade criterion-that the euro seems to be a good choice.
A look at the pros and cons of currency boards as an institution for providing monetary credibility in developing countries.
It is patently obvious that periodic balance-of-payments crises will remain an integral feature of the international economic system as long as fixed exchange rates and rigid wage and price levels prevent the international price system from fulfilling a natural role in the adjustment process. It is, however, far easier to pose the problem and to criticize the alternatives than it is to offer constructive and feasible suggestions for the elimination of what has become an international disequilibrium system.2 This chapter, unfortunately, illustrates that proposition by cautioning against the practicability, in certain cases, of the most plausible alternative: a system of national currencies connected by flexible exchange rates. A system of flexible exchange rates is usually presented, by its proponents,3 as a device whereby depreciation can take the place of unemployment when the external balance is in deficit, and appreciation can replace inflation when it is in surplus. But the question then arises whether all existing national currencies should be flexible. Should the Ghanian pound be freed to fluctuate against all currencies or ought the present sterling-area currencies remain pegged to the pound sterling? Or, supposing that the Common Market countries proceed with their plans for economic union, should these countries allow each national currency to fluctuate, or would a single currency area be preferable? The problem can be posed in a general and more revealing way by defining a currency area as a domain within which exchange rates are fixed and asking: What is the appropriate domain of a currency area? It might seem at first that the question is purely academic, since it hardly appears within the realm of political feasibility that national currencies would ever be abandoned in favor of any other arrangement. To this, three answers can be given: (1) Certain parts of the world are undergoing processes of economic integration and disintegration, new experiments are being made, and a conception of what constitutes an optimum currency area can clarify the meaning of these experiments; (2) those countries, like Canada, that have experimented with flexible exchange rates are likely to face particular problems which the theory of optimum currency areas can elucidate if the national currency area does not coincide with the optimum currency area; and (3) the idea can be used to illustrate certain functions of currencies that have been inadequately treated in the economic literature and that are sometimes neglected in the consideration of problems of economic policy.
This paper investigates the hypothesis that in a small open economy flexible exchange rates act as a 'shock absorber' and mitigate the effects of external shocks more effectively than fixed exchange rate regimes. Using a sample of 42 developing countries, the paper assesses whether the responses of real GDP, the trade balance and the real exchange rate to world output and world real interest rate shocks differ across exchange rate regimes. The paper shows that there are significant differences in the variability of macroeconomic aggregates under fixed and flexible exchange rate regimes. Copyright (c) The London School of Economics and Political Science 2007.
Is Adopting Full Dollarization the Solution? A Look at the Evidence,” (Rio de Janeiro: Pontificia Universidade Católica). r29 Guillaumont, Patrick, Sylviane Guillaumont, and Patrick PlaneParticipating in African Monetary Unions: An Alternative Evaluation
- Goldfajn
- Gino Ilan
- Olivares
Goldfajn, Ilan, and Gino Olivares, 2000, “Is Adopting Full Dollarization the Solution? A Look at the Evidence,” (Rio de Janeiro: Pontificia Universidade Católica). r29 Guillaumont, Patrick, Sylviane Guillaumont, and Patrick Plane, 1988, “Participating in African Monetary Unions: An Alternative Evaluation,” World Development. Vol. 16, No. 5, pp. 569–76
Debt-and Reserve-Related Indicators of External Vulnerability
IMF, 2000, " Debt-and Reserve-Related Indicators of External Vulnerability " (Washington:
International Monetary Fund), http://www.imf.org/external/np/pdr/debtres/index.htm.
Monetary Policy, the Exchange Rate and Inflation
- Kuijs
Kuijs, Aloysius, 2000, " Monetary Policy, the Exchange Rate and Inflation " in IMF Country
Report No. 00/69, pp. 44-53 (Washington: International Monetary Fund).
1715-present. Diário do governo (1715-1974)
- Portugal
- Gazette
Portugal. Gazette. 1715-present. Diário do governo (1715-1974). Lisbon.
Progress Report on Regional Integration Efforts in Africa Towards the Promotion of Intra-African Trade
- Abdoulahi
Abdoulahi, Mahamat, 2005, " Progress Report on Regional Integration Efforts in Africa
Towards the Promotion of Intra-African Trade, " African Trade Policy Center, Economic
Commission for Africa, No. 30, December.
Prospects for a Monetary Union in Namibia: Selected Issues and Statistical Appendix
- Lawrence Dwight
Dwight, Lawrence, 2006, " Prospects for a Monetary Union, " in Namibia: Selected Issues and
Statistical Appendix (Washington: International Monetary Fund), http://www.imf.org/.
The potential consequences of alternative exchange rate regimes: A study of three candidate regions
- Persson
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