Since the beginning of the year 2010, monetary policy as a tool to spur export competitiveness has become fashionable again among the bigger trade blocs. By playing down their currencies, a group of countries (including the United States and China) are lowering the value of their goods for foreign buyers, bolstering their exports. The Chinese intervention on the renmimbi, whose value is estimated to be undervalued by about 40%, is considered by many on having played a significant role in the country’s exports driven development.
Currency games have brought about a renewed activity in the currency speculation business. Countries that refuse monetary interventionism have seen the value of their currencies take off, with sometimes dramatic consequences for their competitiveness. Through carry-trade operations, speculators take advantage of interest rate differentials – which are very low in developed countries – to invest in developing countries. In Nigeria and in the CFA Franc area, currencies appreciated by 10% to 15% during the past 6 months. The South-African rand’s value even increased by close to 28% over that same time period, spreading fears of speculative bubbles.
For African dollarized or dollar linked economies – such as Zimbabwe or the DR Congo -, the FED led quantitative easing policy leads to price increases of primary goods and threatens the lives of vulnerable populations.
More than ever, it is urgent for African countries to find ways to protect themselves against the mishaps of financial exchanges and monetary fluctuations. In the absence of any consensus on a reform of the international financial framework, they should lead the way by providing practical solutions on a regional basis.
