Southern Africa could have common central bank

The CMA (originally the Rand Monetary Area) is a monetary union of Lesotho, Namibia, South Africa and Swaziland. The currencies of Namibia, Lesotho and Swaziland are pegged to the South African rand on a one-to-one basis.

"We are looking into the possibility of one central bank," said Dlamini, who has been governor since 1997 and was reappointed for a second term in 2002. He was in London to chair a meeting at the Commonwealth Business Council's Banking Forum on Thursday. The governors of the central banks in the CMA have agreed on an approach and "now it is up to the politicians," he said. While no exact date has been set, "if the politicians are receptive", he added, "it could be within five years."

The governor's enthusiasm remains undiminished despite the recent strength of the rand, which the governor acknowledged is hurting Swaziland's economy. "I would like to see currency soften," he said. "But we are not considering moving away from the peg: one of its virtues is financial discipline." The governor's immediate concern is the decline in domestic economic growth, which has fallen from 3% to 2.5% over the last three years, with projections for 1.5% in 2005. Although inflation has been under control over the same period, down from almost 12% to 4%, the rise in the price of fuel threatens to push it up towards 5%. Interest rates have been cut to 7% but flexibility is limited by the need to maintain the peg.

However, the CMA is not the only candidate for a single currency in Southern Africa. The larger 13-country Southern African Development Community (SADC) region, which includes the four countries of the CMA, is often mentioned as a possibility for a future currency area. Yet plans remain long term. Earlier this year, the governor of the South African central bank, Tito Mboweni, said 2016 was a possible target date for a single currency for the area. An article in the December 2004 issue of the IMF's Finance & Development said that monetary union in SADC would be undesirable, but suggested that expansion of the CMA and the CFA franc zone could provide stepping stones to larger continental monetary union.

"The problem with SADC is economic convergence," according to the Dlamini. A glance at basic economic statistic bears witness to this: the area contain countries with differing economic situations. In Zimbabwe, for example, inflation is above 100% and Swaziland's figure is in single digits. For SADC, "convergence may take years," Dlamini noted. While one element for a single currency - a strong peg - may be in place, rules to limit government spending and questions over the flexibility of labour within the four countries of the CMA remain issues to be addressed, as Dlamini conceded. Yet, with its peg in place, the CMA may find itself better prepared to issue Southern Africa's first single currency of the 21st century, and possibly pave the way for a larger regional union.