By:Justicia Shipena
Amidst the high cost of living and inflation shocks driving down, countries are not out of the woods yet, the Governor of Bank of Namibia (BoN) Johannes !Gawaxab has said.
For the second quarterly Common Monetary Area (CMA)Governors’ meeting of the year held on Friday, the BoN hosted the governors of the central banks of South Africa, Lesotho and Eswatini.
The meeting, which took place in Swakopmund, aimed to build on discussions from the previous meeting in Maseru, Lesotho, and lay the groundwork for creating specific action plans to successfully implement the CMA strategy and improve cross-border payments, exchange controls, and financial stability among CMA member countries.
Headline inflation in the CMA remains elevated and averaged 6.4% for the first quarter of 2023, but the nature of the inflation challenge is changing.
!Gawaxab said they observed a decline in the inflation rate as shocks that drove up inflation waned.
“We are not out of the woods yet, but inflation expectations appear to be anchoring. I do not doubt that we will all stay the course to bring inflation down to where it belongs,” !Gawaxabsaid.
“Governors, the world is on the verge of a stagflation,” !Gawaxab pointed out. He added that the conflict between Russia and Ukraine is continuing almost unabated and that competition and friction between the superpowers US and China are rising. He stated that geopolitical fault lines are now more obvious than ever.
The Governor stated that decision-makers are dealing with an unusual combination of difficulties, but added that central banks around the globe have been battling to rein in inflation.
“Each of these challenges, inflation and tight financing conditions, by themselves would be difficult to tackle; their combination is a daunting challenge,” he said.
!Gawaxab advised Governors to pay attention to discussions about currencies and de-dollarisation during the same meeting as the US Dollar’s primacy as a reserve currency has resurfaced.
Many countries, he said, are considering alternative currency systems for international trade.
This year, five major African banking groups have signed agreements to integrate the new Pan African Payment and Settlement System (PAPSS) into their operations.
The PAPSS is a system that allows the banks to transact across borders using their own local currencies.
“We all are familiar with the idea of the exorbitant privilege of the US dollar. This is because other countries are willing to hold US dollars as a reserve asset, which increases the demand for US dollars in the international market. The US is able to borrow at lower interest rates than it would be able to otherwise since other countries are effectively subsidising its debt.”
!Gawaxab’s call follows a month after Kenyan President William Ruto urged African leaders to take the first steps towards replacing the US dollar as the world’s reserve currency by establishing the PAPSS to encourage intra-Africa commerce.
He went on to suggest that alternative currencies, such as the BRICS currency or an African continental currency, are also being considered.
As a result, he stated that any alternative reserve currency must meet the characteristics of convertibility, liquidity, rule of law, and extensive capital markets.
“We are following the debate around alternative currencies, knowing that a lot of water will have to flow into the ocean before the status quo changes. The transition to a new reserve currency, if it happens, is a slow process, much like a snail’s race,” he added.
He also addressed the discussion about the African currency, emphasising that macroeconomic convergence is required to achieve this.
Declining Inflation Offers Little Relief As BoN Governor Emphasises Ongoing Economic Vulnerability
