![Common Monetary Area](https://upload.wikimedia.org/wikipedia/commons/0/01/Common_Monetary_Area.svg)
The Common Monetary Area (CMA) links
South Africa
South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa. It is bounded to the south by of coastline that stretch along the South Atlantic and Indian Oceans; to the north by the neighbouring countri ...
,
Namibia
Namibia (, ), officially the Republic of Namibia, is a country in Southern Africa. Its western border is the Atlantic Ocean. It shares land borders with Zambia and Angola to the north, Botswana to the east and South Africa to the south and ea ...
,
Lesotho
Lesotho ( ), officially the Kingdom of Lesotho, is a country landlocked country, landlocked as an Enclave and exclave, enclave in South Africa. It is situated in the Maloti Mountains and contains the Thabana Ntlenyana, highest mountains in Sou ...
and
Eswatini
Eswatini ( ; ss, eSwatini ), officially the Kingdom of Eswatini and formerly named Swaziland ( ; officially renamed in 2018), is a landlocked country in Southern Africa. It is bordered by Mozambique to its northeast and South Africa to its no ...
into a
monetary union
A currency union (also known as monetary union) is an intergovernmental agreement that involves two or more states sharing the same currency. These states may not necessarily have any further integration (such as an economic and monetary union, ...
. It is allied to the
Southern African Customs Union
The Southern African Customs Union (SACU) is a customs union among five countries of Southern Africa: Botswana, Eswatini, Lesotho, Namibia and South Africa. Its headquarters are in the Namibian capital, Windhoek. It was established in 1910.
His ...
(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
The South African rand, or simply the rand, ( sign: R; code: ZAR) is the official currency of the Southern African Common Monetary Area: South Africa, Namibia (alongside the Namibian dollar), Lesotho (alongside the Lesotho loti) and Eswatini ...
is legal tender in all states, the other member states issue their own currencies: the
Lesotho loti
The Loti (plural: Maloti) is the currency of the Kingdom of Lesotho. It is subdivided into 100 ''lisente'' (sg. ''sente''). It is pegged to the South African rand on a 1:1 basis through the Common Monetary Area, and both are accepted as legal te ...
,
Namibian dollar
The Namibian dollar (symbol: N $; code: NAD) has been the currency of Namibia since 1993. It is normally abbreviated with the dollar sign $, or alternatively N$ to distinguish it from other dollar-denominated currencies. It is divided into 100 ...
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
Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
throughout the CMA continue to reflect the influence of the
South African Reserve Bank
The South African Reserve Bank (SARB) is the central bank of South Africa. It was established in 1921 after Parliament passed an act, the "Currency and Bank Act of 10 August 1920", as a direct result of the abnormal monetary and financial condit ...
.
Of the SACU members, only
Botswana
Botswana (, ), officially the Republic of Botswana ( tn, Lefatshe la Botswana, label=Setswana, ), is a landlocked country in Southern Africa. Botswana is topographically flat, with approximately 70 percent of its territory being the Kalahar ...
is currently out of the CMA, having replaced the rand with the
pula
Pula (; also known as Pola, it, Pola , hu, Pòla, Venetian language, Venetian; ''Pola''; Istriot language, Istriot: ''Puola'', Slovene language, Slovene: ''Pulj'') is the largest city in Istria County, Croatia, and the List of cities and town ...
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, originated from the Rand Monetary Area (RMA), which was formally established in December 1974; the signatories of the latter were South Africa, Lesotho, and Swaziland.
"South Africa’s experience of regional currency areas and the use of foreign currencies", Lambertus van Zyl In that year Swaziland and Lesotho established their own national currencies, now called the
Swazi lilangeni, 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.
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
The Union of South Africa ( nl, Unie van Zuid-Afrika; af, Unie van Suid-Afrika; ) was the historical predecessor to the present-day Republic of South Africa. It came into existence on 31 May 1910 with the unification of the Cape, Natal, Trans ...
in 1910 and when the
South African Reserve Bank
The South African Reserve Bank (SARB) is the central bank of South Africa. It was established in 1921 after Parliament passed an act, the "Currency and Bank Act of 10 August 1920", as a direct result of the abnormal monetary and financial condit ...
was formed in 1921, the
South African pound
The pound (Afrikaans: ''pond''; symbol £, £SA for distinction) was the currency of the Union of South Africa from the formation of the country as a British Dominion in 1910. It was replaced by the rand in 1961 when South Africa decimalised.
In ...
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
Seigniorage , also spelled seignorage or seigneurage (from the Old French ''seigneuriage'', "right of the lord (''seigneur'') to mint money"), is the difference between the value of money and the cost to produce and distribute it. The term can be ...
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.
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
The Namibian dollar (symbol: N $; code: NAD) has been the currency of Namibia since 1993. It is normally abbreviated with the dollar sign $, or alternatively N$ to distinguish it from other dollar-denominated currencies. It is divided into 100 ...
.
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
The RAND Corporation (from the phrase "research and development") is an American nonprofit global policy think tank created in 1948 by Douglas Aircraft Company to offer research and analysis to the United States Armed Forces. It is finan ...
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 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.
See also
*
African Monetary Union
The African Monetary Union (AMU) is the proposed creation of an economic and monetary union for the countries of the African Union, administered by the African Central Bank. Such a union would call for the creation of a new unified currency, simi ...
*
Eco, another attempt at an African common currency, within the ECOWAS community.
* The
West African CFA franc
The West African CFA franc (French: ''franc CFA'' or simply ''franc'', ISO 4217 code: XOF; abbreviation: F.CFA) is the currency used by eight independent states in West Africa which make up the West African Economic and Monetary Union (UEMOA; ') ...
and
Central African CFA franc
The Central African CFA franc ( French: ''franc CFA'' or simply ''franc''; ISO code: XAF; abbreviation: F.CFA) is the currency of six independent states in Central Africa: Cameroon, Central African Republic, Chad, Republic of the Congo, Equator ...
(C.F.A.) are other existing African currency unions.
Literature
*
References
{{SACU
Currencies of Africa
Currencies of the Commonwealth of Nations
Economy of South Africa
Currency unions
Lesotho–South Africa relations
Namibia–South Africa relations
Eswatini–South Africa relations