The viability of regional monetary integration : the case of the Southern African common monetary area.

Abstract

Through mutual trade in goods and assets, economies become closer linked - integrated - and this changes the way these economies react to their own and each other's economic policy and disturbances. Recognising this, the countries may chose to enter into integration arrangements which facilitate goods and asset trade and may permit co-ordinated action in the policy sphere. A monetary integration arrangement unites more closely the monetary systems of a number of countries, and this may be in the absence or presence of a broader economic integration arrangement (for example a common market). This thesis examines aspects of the integration arrangement known as the Common Monetary Area (CMA), between South Africa, Lesotho and Swaziland. Chapter 2 outlines theoretical considerations of the desirability of monetary integration, while Chapter 3 uses a model to analyse the effects of goods and asset market integration on the economic policy and disturbance transmission of two countries. Chapter 4 describes the institutional and historical setting of the CMA, as well as the reasons behind the changes made to the legal arrangement in 1986. Chapter 5 presents a critique of an attempt to analyse the CMA as an optimal currency area, while Chapter 6 analyses the state of broader economic integration over the CMA, and assesses its implications for monetary integration. Chapter 7 addresses empirically the question of the degree of asset and goods market integration and explains the implications for monetary integration, while chapter 8 analyses the situation of Botswana, a non-CMA member, to assess its importance for the CMA and its relation to the debate surrounding the continued existence of the CMA. The conclusion that is reached is that, given extant levels of goods and asset market integration, the members of the CMA (especially the smaller members) would benefit from greater joint policy making and policy co-ordination, i.e. greater monetary unification.