!Gawaxab: Governors should not avoid criticism from Rand

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SWAKOPMUND Bank of Namibia Governor Johannes !Gawaxab urged other central bank governors in the Common Monetary Area (CMA) not to shy away from pointing out the negative impact of a weak South African rand.

According to !Gawaxab, the weak rand has serious repercussions, especially on smaller countries in the region that are net importers of goods and services.

!Gawaxab was speaking at the CMA Governors meeting, hosted by the BoN in Swakopmund last week. Besides Namibia, the meeting included South Africa, Lesotho and Eswatini for the second quarterly meeting of CMA Governors this year.

Distinguished Governors, the weakness of the Rand of late has led to intense debates in the countries participating in the CMA. We must not hesitate to point this out and to reflect on mitigation strategies in the light of the direct but varied impacts in each of our countries. While acknowledging these concerns, the Bank of Namibia considers the benefits of CMA membership to outweigh the costs, the Governor said.

The meeting aimed to build on discussions from the previous meeting in Maseru, Lesotho, and pave the way for the development of clear action plans to effectively implement the CMA strategy and improve cross-border payments. , exchange control and financial stability in CMA member countries.

The CMA is a monetary union that includes South Africa, Namibia, Lesotho and Swaziland.

While each of these sovereign nations issues its currency, all four currencies are effectively governed by the South African Reserve Bank, and they are valued and traded at par with the South African rand. The Rand has seen some depreciation lately due to energy challenges and South Africa’s gray listing.

In May 2023, the Namibian Statistics Agency (NSA) stated that South Africa remained the main source of imports for Namibia.

The import basket consisted mainly of petroleum oils, copper ores and concentrates, motor vehicles for the transport of goods, civil engineering and contractors’ equipment, as well as automobiles for the transport of people.

Last month, !Gawaxab noted that the benefits of the current fixed exchange rate arrangement between the Namibian dollar and the South African rand outweighed the costs, saying decoupling is not an option, as it would have a serious negative impact on the national economy in different ways.

He added that Namibia was not yet close to thinking about disconnection.

We would not even want to tolerate or engage in a debate that we are considering unbundling the currency. Anyone else is free to think about it. But as BoN, our position is that the current arrangement serves the country quite well. With a small open economy, we can hardly influence anything. And we do not even think of the conditions of a possible exit, underlines! Gawaxab.

In addition, during his opening remarks at the Governors’ meeting, !Gawaxab noted the growing public concern over the continuing cost of living challenge.

We have been decisive and remain committed to our mandate to fight inflation. Headline inflation in the CMA remains high, averaging 6.4% for the first quarter of 2023, but the nature of the inflation challenge is changing.

We are seeing a decline in the rate of inflation, as the shocks that drove up inflation fade and our monetary policy actions trickle down to the economy. We are not out of the woods yet, but inflation expectations seem to be anchoring. I have no doubt that we will all stay the course to get inflation back to where it needs to be, the governor said.

!Gawaxab also said that the dominance of the US dollar as a reserve currency is back in the news. It is that many countries and traders are considering alternative monetary regimes for international trade.

The governor pointed to the exorbitant US dollar privilege that the United States can borrow at lower interest rates in international markets. This effectively means that other countries are effectively subsidizing Americas debt.

Alternative currencies, such as those of Brazil, Russia, India and China (BRICS) or a continental currency for Africa, are also being considered, he said.

Any alternative reserve currency must meet the criteria of convertibility, liquidity, rule of law and deep capital markets. The fact that the price of oil is in US dollars is another key consideration in this debate. We follow the debate around alternative currencies, knowing that a lot of water will have to flow into the ocean before the status quo changes. The transition to a new reserve currency, if it happens, is a slow process, a bit like a snail race, the central bank governor said.

He added that for an African currency to become a reality, there would need to be continental similarities in inflation, debt levels, fiscal policies and banking rules, to name a few.

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2023-07-11 Maihapa Ndjavera

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