The Common Monetary Area (CMA) links South Africa, Namibia, Lesotho and Eswatini 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. [1] [2]
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.
The CMA, enacted in July 1986, [3] originated from the Rand Monetary Area (RMA), which was formally established in December 1974; [4] the signatories of the latter were South Africa, Lesotho, and Swaziland. [5] In that year Swaziland and Lesotho established their own national currencies, now called the lilangeni 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.
While the formal arrangements date back to 1974, they ultimately stem from informal arrangements spanning back to prior to the formation of the Union of South Africa in 1910 and when the South African Reserve Bank was formed in 1921, the South African pound became the sole circulating legal tender in the territories that today form the CMA alongside Bechuanaland (now Botswana). This arrangement continued when the South African pound was replaced by the South African rand in 1961. The lack of monetary policy discretion, a formal framework for consultation and sharing of seigniorage by South Africa for the smaller territories led to protracted negotiations which ultimately resulted in the formal 1974 agreement, however Botswana decided against joining the formalized arrangements and pursued an independent currency with its own central bank. [5]
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 in SACU, 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.
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 its 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 in accordance with prudential regulations between the LNS countries.
Compensation payments are based on the formula equal to the product and the volume of rand estimated to be in circulation in the member country concerned. The ratio is 2/3 of the annual yield according to the most recent South African government stock. This ratio was established 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 effecting from transactions between the CMA and South Africa. Gold and exchange receipts from locals are requirements for the local surrender. Also, there are no restrictions on international transactions between non-residents. [6] [1]
The economy of Botswana is currently one of the world's fastest growing economies, averaging about 5% per annum over the past decade. Growth in private sector employment averaged about 10% per annum during the first 30 years of the country's independence. After a period of stagnation at the turn of the 21st century, Botswana's economy registered strong levels of growth, with GDP growth exceeding 6-7% targets. Botswana has been praised by the African Development Bank for sustaining one of the world's longest economic booms. Economic growth since the late 1960s has been on par with some of Asia's largest economies. The government has consistently maintained budget surpluses and has extensive foreign-exchange reserves.
The South African financial rand was the most visible part of a system of capital controls. Although the financial rand was abolished in March 1995, some capital controls remain in place. These capital controls are locally referred to as "exchange controls", although the system has since 1995 moved towards surveillance — recording and reporting to the authorities of foreign currency transactions — rather than control.
The economy of Lesotho is based on agriculture, livestock, manufacturing, mining, and depends heavily on inflows of workers’ remittances and receipts from the Southern African Customs Union (SACU). Lesotho is geographically surrounded by South Africa and is economically integrated with it as well. The majority of households subsist on farming. The formal sector employment consist of mainly female workers in the apparel sector. While male migrant laborers work primarily as miners in South Africa for 3 to 9 months and employment in the Government of Lesotho (GOL). Half of the country's population work in informal crop cultivation or animal husbandry.
The economy of Namibia has a modern market sector, which produces most of the country's wealth, and a traditional subsistence sector. Although the majority of the population engages in subsistence agriculture and herding, Namibia has more than 200,000 skilled workers and a considerable number of well-trained professionals and managerials.
The economy of Eswatini is fairly diversified. Agriculture, forestry and mining account for about 13 percent of Eswatini's GDP whereas manufacturing represent 37 percent of GDP. Services – with government services in the lead – constitute the other 50 percent of GDP.
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The South African rand, or simply the rand, is the official currency of the Southern African Common Monetary Area: South Africa, Namibia, Lesotho and Eswatini. It is subdivided into 100 cents.
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