Oil-exporters need to rethink their monetary policy regimes

I started writing this post on Monday, but I have had an insanely busy week – mostly because of the continued sharp drop in oil prices and the impact of that on particularly the Russian rouble. But now I will try to finalize the post – it is after on a directly related topic to what I have focused on all week – in fact for most of 2014.

Oil prices have continued the sharp drop and this is leading to serious challenges for monetary policy in oil-exporting countries. Just the latest examples – The Russian central bank has been forced to abandon the managed float of the rouble and effectively the rouble is now (mostly) floating freely and in Nigeria the central bank the central bank has been forced to allow a major devaluation of the country’s currency the naira. In Brazil the central bank is – foolishly – fighting the sell-off in the real by hiking interest rates.

While lower oil prices is a positive supply shock for oil importing countries and as such should be ignored by monetary policy makers the story is very different for oil-exporters such as Norway, Russia, Angola or the Golf States. Here the drop in oil prices is a negative demand shock.

In a country like Norway, which has a floating exchange rate the shock is mostly visible in the exchange rate – at least to the extent Norges Bank allows the Norwegian krone to weaken. This of course is the right policy to pursue for oil-exporters.

However, many oil-exporting countries today have pegged or quasi-pegged exchange rates. This means that a drop in oil prices automatically becomes a monetary tightening. This is for example the case for the Golf States, Venezuela and Angola. In this countries what I have called the petro-monetary transmission mechanism comes into play.

An illustration of the petro-monetary transmission mechanism

When oil prices drop the currency inflows into oil-exporting countries drop – at the moment a lot – and this puts downward pressure on the commodity-currencies. In a country like Norway with a floating exchange rate this does not have a direct monetary consequence (that is not entirely correct if the central bank follows has a inflation target rather than a NGDP target – see here)

However, in a country like Saudi Arabia or Angola – countries with pegged exchange rates – the central bank will effectively will have tighten monetary policy to curb the depreciation pressures on the currency. Hence, lower oil prices will automatically lead to a contraction in the money base in Angola or Saudi Arabia. This in turn will cause a drop in the broad money supply and therefore in nominal spending in the economy, which likely will cause a recession and deflationary pressures.

The authorities can offset this monetary shock with fiscal easing – remember the Sumner critique does not hold in a fixed exchange rate regime – but many oil-exporters do not have proper fiscal buffers to use such policy effectively.

The Export-Price-Norm – good alternative to fiscal policy

Instead I have often – inspired by Jeffrey Frankel – suggested that the commodity exporters should peg their currencies to the price of the commodity the export or to a basket of a foreign currency and the export price. This is what I have termed the Export-Price-Norm (EPN).

For commodity exporters commodity exports is a sizable part of aggregate demand (nominal spending) and therefore one can think of a policy to stabilize export prices via an Export-Price-Norm as a policy to stabilize nominal spending growth in the economy. The graph – which I have often used – below illustrates that.

The graph shows the nominal GDP growth in Russia and the yearly growth rate of oil prices measured in roubles.

There is clearly a fairly high correlation between the two and oil prices measured in roubles leads NGDP growth. Hence, it is therefore reasonable in my view to argue that the Russian central bank could have stabilized NGDP growth by conducting monetary policy in such a way as to stabilize the growth oil prices in roubles.

That would effectively mean that the rouble should weaken when oil prices drop and appreciate when oil prices increase. This is of course exactly what would happen in proper floating exchange rate regime (with NGDP targeting), but it is also what would happen under an Export-Price-Norm.

Hence, obviously the combination of NGDP target and a floating exchange rate regime would do it for commodity exporters. However, an Export-Price-Norm could do the same thing AND it would likely be simpler to implement for a typical Emerging Markets commodity exporter where macroeconomic data often is of a low quality and institutions a weak.

So yes, I certainly think a country like Saudi Arabia could – and should – float its currency and introduce NGDP targeting and thereby significantly increase macroeconomic stability. However, for countries like Angola, Nigeria or Venezueala I believe an EPN regime would be more likely to ensure a good macroeconomic outcome than a free float (with messy monetary policies).

A key reason is that it is not necessarily given that the central bank would respect the rules-of-the-game under a float and it might find it tempting to fool around with FX intervention from time to time. Contrary to this an Export-Price-Norm would remove nearly all discretion in monetary policy. In fact one could imagine a currency board set-up combined with EPN. Under such a regime there would be no monetary discretion at all.

The monetary regime reduces risks, but will not remove all costs of lower commodity prices

Concluding, I strongly believe that an Export-Price-Norm can do a lot to stabilise nominal spending growth – and therefore also to a large extent real GDP growth – but that does not mean that there is no cost to the commodity exporting country when commodity prices drop.

Hence, a EPN set-up would do a lot to stabilize aggregate demand and the economy in general, but it would not change the fact that a drop in oil prices makes oil producers such as Saudi Arabia, Russia and Angola less wealthy. That is the supply side effect of lower oil prices for oil producing countries. Obviously we should expect that to lower consumption – both public and private – as a drop in oil prices effectively is a drop in the what Milton Friedman termed the permanent income. Under a EPN set-up this will happen through an increase inflation due to higher import prices and hence lower real income and lower real consumption.

There is no way to get around this for oil exporters, but at least they can avoid excessive monetary tightening by either allowing currency to float (depreciate) free or by pegging the currency to the export price.

Who will try it out first? Kuwait? Angola or Venezuela? I don’t know, but as oil prices continue to plummet the pressure on governments and central banks in oil exporting countries is rising and for many countries this will necessitate a rethinking of the monetary policy regime to avoid unwarranted monetary tightening.

PS I should really mention a major weakness with EPN. Under an EPN regime monetary conditions will react “correctly” to shocks to the export prices and for countries like Russia or Anglo “normally” this is 90% of all shocks. However, imagine that we see a currency outflow for other reasons – for as in the case of Russia this year (political uncertainty/geopolitics) – then monetary conditions would be tightened automatically in an EPN set-up. This would be unfortunate. That, however, I think would be a fairly small cost compared to the stability EPN otherwise would be expected to oil exporters like Angola or Russia.

PPS I overall think that 80-90% of the drop in the rouble this year is driven by oil prices, while geopolitics only explains 10-20% of the drop in the rouble. See here.


East African Monetary Union remains a very bad idea (I have a better idea)

This is from the Kenyan daily The Nation:

East African Community leaders on Saturday signed the Monetary Union Protocol which is intended to result in a single currency in 10 years’ time.

The signing ceremony held at Speke Resort Munyonyo in Uganda was witnessed by Members of the East Africa Legislative Assembly, diplomats and high ranking government officials of member states.

President Uhuru Kenyatta was earlier installed as chairman of the EAC, a major regional role that will see him become the focal point in discussing East Africa’s response to serious challenges ranging from hunger to terrorism.

President Kenyatta joined host President Yoweri Museveni, Rwandan President Paul Kagame, Tanzanian President Jakaya Kikwete and Burundi President Pierre Nkurunziza first at a resort on the shores of Lake Victoria for formal EAC talks.

…The protocol will provide for a wide scope of co-operation in monetary and financial sectors among EAC members.

Under the protocol, EAC states are expected to surrender monetary and exchange rates policies to one authority leading to a single currency regime within the region.

The protocol will be implemented over a ten year period, subsequently leading to creation of a regional central bank whose mandate is to stabilise financial prices as well as monitoring, surveillance and enforcing compliance of all other macro finance matters.

President Kenyatta told the launch the monetary union will accelerate trade growth within the region.

I strongly believe that there are great economic benefits from further economic integration in East Africa and I generally am quite (very!) optimistic about the prospects for the East African economies. However, I continue to be extremely skeptical about the benefits of an East African currency union. I have written about this issue before – so let me quote myself:

The euro crisis should give African policy makers a lot of reasons why not to rush into currency union – even taking into account the present problems with credibility in the present monetary regimes in many African countries. The experience from the euro zone is that if sufficient economic, financial and political (and dare I say cultural) convergence is not achieved between the members of the currency union then it could have disastrous consequences.

The EAC (the East African Community) is a much looser union than the EU and just the fact that an internal market in Eastern Africa has not even been fully implemented should make one very cautious about EA monetary union. Despite of that work with monetary integration in the region goes ahead – even though the pace is much slower than had been the official political ambition.

…monetary union should not be rushed through. Rather policy makers should look for other possible reforms that will enhance trade and financial integration in Eastern Africa.

And the issue of lack of trade integration is an issue brought up in article in The Nation:

President Kenyatta urged member states to eliminate all the remaining barriers to free movement of people, goods and services.

“Barriers to trade in particular assail the spirit of the Common Market, Customs Union and the Monetary Union,” said President Kenyatta, calling for the removal of all obstructions to the growth of the community, stressing the need to allow free movement of people, businesses and capital within the community to provide opportunities for generating prosperity.

He also called on investors and other businesspersons to enhance their participation and commitment to empowering economic growth in the community.

“Businesses and traders in the small and micro-enterprises sector need to be enabled to trade in the regional arena. I commend the work done in this regard, especially through regional exhibition,” President Kenyatta said.

The President also said the envisioned integration will work as intended when underpinned by a sound infrastructure system, stressing that development of infrastructure connecting member states was key to the integration process.

To me it is incredible that policy makers would push ahead with any kind of monetary union given the very obvious lack of political will to make a real push for a true East African free trade area.

Let me instead repeat an old idea of mine – privatized and endogenous monetary integration in East Africa:

It is certainly not obvious that the present “monetary borders” in Eastern Africa are optimal. Just the fact that borders across Africa are highly artificial and to a large extent due to colonial history could e an argument for currency unions across different countries in Africa – including in Eastern Africa. However, there is no reason why such monetary integration should happen through the introduction of common (monopoly) currency in the EAC. In fact there might be a better privatised option in the form of the so-called M-pesa and other electronic payment forms.

Over the last couple of years M-pesa which is a mobile telephone payment system (M-pesa means Mobile Money) has become hugely popular in Kenya and in many ways M-pesa has led to a quasi-privatisation of the monetary system in Kenya and M-pesa clearly has the potential to become a fully privatised parallel currency in Kenya.

M-pesa has also been introduced in other Eastern African countries but the success has been much more limited in countries like Tanzania than in Kenya. I believe that the primary reason for the success of M-pesa in Kenya is the fact that authorities wisely have not applied banking regulation to the M-pesa. On the other hand M-pesa is much more regulated in other Eastern African countries, which most likely has hampered the expansion of the M-pesa (and similar payment systems) in other East African countries.

I believe that many of the advantages of monetary union could easily be achieved by enhancing the use of M-pesa style payment systems across Eastern Africa. The main advantage of currency union is the reduction of transaction costs, but this is also the main advantage of M-pesa style systems. So if the EAC wants to help monetary integration in Eastern Africa then it would make much more sense to agree on common regulation of M-pesa style payment systems and allow these systems to be used across the EAC. In that regard it should of course be stressed that this regulation should be as “light” as possible and should not hamper the development of electronic and mobile based payment systems.

The clear advantage of such solutions for monetary integration in EAC would be that it would become “endogenous” meaning that households and corporations would only use a “common” currency (in the form of for example M-pesa) if they benefit from the use of that “currency”. Hence, one could easily imagine that most companies in for example Tanzania and Kenya would start using M-pesa style payment systems also for cross border payments, while for example households in Rwanda would prefer another payment system. Monetary Union limits monetary competition. This should never be the purpose of monetary reform. On the other hand deregulation (and common EAC regulation) of mobile payment systems will enhance monetary competition and likely lead to a more efficient form of monetary integration. Said, in another way why not let the market decided on the size of the optimal currency area?

If the EAC nonetheless wants to go ahead with creating a common currency it should opt for a “parallel currency” solution where the national currencies are maintained and the common currency is created as a common “accounting unit”. This accounting unit could take the form of what George Selgin has termed Quasi-commodity money (QCM), where the money base is expanded at a fixed yearly rate for example 5 or 10% based on an automatic electronic algorithm. It would be natural that private suppliers of M-pesa style payment systems would use this common accounting unit as the reference unit of accounting.

This is basically a suggestion for a privatised monetary integration in Eastern Africa. If successful this would lead to monetary integration in Eastern African and significantly reduce transaction costs of cross-border transactions, which exactly is the purpose of the EAC’s proposal for monetary union, but it would avoid the problems associated with lack of economic and political integration.

Concluding, forget about East African monetary, focus on removing barriers to the free movement of goods, capital and labour in East Africa and leave monetary integration to the free markets.

The Sudanese Pound – another Troubled Currency

A couple of days ago I wrote about Steve Hanke’s new Troubled Currencies project. The project presently covers Argentina, Iran, North Korea, Syria andVenezuela. However, I think Steve now has to expand the list with the Sudanese pound.

This is from Reuters yesterday:

Sudan’s currency has fallen to a record low against the dollar on the black market since South Sudan started reducing cross-border oil flows in a row over alleged support for rebels, dealers said.

There is little foreign trading in the Sudanese pound but the black market rate is an important indicator of the mood of the business elite and of ordinary people left weary by years of economic crises, ethnic conflicts and wars.

The rate is also watched by foreign firms such as cellphone operators Zain and MTN and by Gulf banks who sell products in pounds and then struggle to convert profits into dollars. Gulf investors also hold pound-denominated Islamic bonds sold by the central bank.

On Wednesday, one dollar bought 7.35 pounds on the black market – which has become the business benchmark – compared to 7 last week, black market dealers said. The central bank rate is around 4.4.

The pound has more than halved in value since South Sudan became independent in July 2011, taking with it three-quarters of the united country’s oil output. Oil was the driver of the economy and source for dollars needed for imports.

Last week, South Sudan said it would close all oil wells by the end of July after Sudan notified it a month ago it would halt cross-border oil flows unless Juba gave up support for rebels. South Sudan denies the claims.

Flows had only resumed in April after an earlier 16-month oil shutdown following South Sudan’s secession.

Interesting it is not only Sudan that has a currency/inflation problem. The same has indeed been the case for South Sudan, which initially after it became independent in 2011 saw a sharp spike in inflation.

Paradoxically enough the cause of the spike in inflation in South Sudan was the same as in Sudan – an South Sudanese oil boycott of Sudan. Hence,  the cut in oil sales from South Sudan to Sudan caused a sharp drop in the South Sudanese government’s oil revenue. That led the government to effectively force the new South Sudan central bank to fund the revenue shortfall by letting the money printing press work overtime.

As far as I know it was initially considered that South Sudan should implement Steve’s favourite monetary solution for countries like Sudan and South Sudan – a currency board.

Even though I am no big fan of currency boards I would agree with Steve that it could be the right solution for countries with extremely weak institutions such as Sudan and South Sudan. Another possibility could simply be to just dollarize and completely give up having their own currencies. My favourite solution for South Sudan would be a currency board, but with a twist – the Sudan Sudanese pound should be pegged to the price of oil rather than to another currency. This of course would be a strict form of the Export Price Norm (EPN), while I think complete dollarization would be the best solution for Sudan. Needless to say both Sudan and South Sudan should get rid of all capital and currency controls.

Finally it should be noted that while inflation seems to be getting out of control in Sudan inflation in South Sudan has been coming down significantly over the past year.

PS While the monetary situation is getting worse in Sudan the situation in Egypt apparently is improving and the black market for the Egyptian pounds seem to be “vanishing” according to a blog post from Steve today.

Believe it or not – Africa is just a very good story

I am in Stockholm this morning – the main topic for today’s meeting is the prospects for the African economies. I have for a long time had the view that Africa could very well turn into the best investment story in the world.

There is no doubt that my view of Africa is to a large extent influenced by my having worked professionally on the Central and Eastern European economies for more than a decade and I see a lot of the same potential in Africa as the miracle we have seen in countries such as Poland and Slovakia over the past now more than 20 years.

In contrast to the common perception, I do not think Africa is destined always to do badly. Indeed, I believe that in 20 years we will be able to point to success stories in Africa in the same way we talk about the success of Poland or Slovakia today.

The end of the Cold War – now it is finally showing in Africa

It was the end of the Cold War and the collapse of communism that started the catch-up process in Central and Eastern Europe that led to most of the significant progress in living conditions for ordinary people in the former communist countries and led also to the spread of democracy and respect for human rights. Not everything is perfect in Central and Eastern Europe – far from it – but few would argue that life was better for Central and Eastern Europeans in 1989 than today.

The change in Central and Eastern Europe was very visible when the Cold War ended – the Berlin Wall disappeared, free elections were held, economic reforms were (mostly) swift and with the support of Western governments. However, what most people do not realise is that the end of the Cold War was equally – if not more – important for the African countries. While the Cold War was indeed cold in Europe, in Africa very hot wars had continued since the 1960s as a direct result of the Cold War.

Effectively the continent had been spilt between the East and the West and both parties had their own dictators running things (or rather mismanaging and looting). When the Cold War ended, the new democratic Russia stopped financing communist dictators in Africa and as communist regimes in countries such as Ethiopia or Angola opened up or collapsed, the West stopped funding ‘their’ dictators in Africa. This effectively meant that the number of dictatorships in Africa became a lot fewer in the 1990s.

As dictators fell across Africa and democracy spread (yes it is far from perfect anywhere in Africa), market reforms took off and the African economies gradually opened up.

So, as in Central and Eastern Europe, there is a direct line from the end of the Cold War to market reforms.

As in Central and Eastern Europe, the reforms sparked an economic take-off but unlike in Central and Eastern Europe the economic take-off in Africa has been much less noticed by commentators, policymakers and investors. However, it remains that over the past decade African countries such as Angola have been among the fastest growing countries in the world. Indeed, a country such as Angola has had a significantly more impressive growth record over the past 10 years than emerging market darlings such as Brazil, Turkey and Poland.

The best emerging markets story for the next decade

The picture of Africa is changing – over the past decade Africa has gone more or less unnoticed but more and more investors are now discovering it and more and more investors are realising that Africa could very well be the new catch-up story. Indeed, I would argue that the African story might very well become the best emerging markets story in the coming decade.

I believe there are numerous reasons why one should be optimistic about the medium- and long-term growth outlook for Africa.

First – the obvious reason – Africa remains very poor, so there is a lot of catch-up potential. Being the poorest continent in the world, the catch-up potential is the greatest.

Second, the catch-up potential is being unlocked, as reforms spread across the continent. Without these market reforms, Africa will not unlock its enormous potential. We have already seen serious reform across the continent but Africa is still lagging way behind when it comes to opening up and freeing up the economies. Africa should learn from countries such as Poland that moved swiftly when communism came to an end. African leaders should realise that if they want to be re-elected they should undertake economic reform to spur economic growth. Put another way, former Polish Finance Minister Leszek Balcerowicz should be a frequent visitor to Africa – as far as I know he is not.

Third, war raged Africa for nearly three decades. However, although over the past two years we have seen wars in North Africa and civil unrest in more places on the continent, the general picture is that Africa in general has become a peaceful (but not necessarily safe) continent.

Fourth, Prime Ministers and Presidents generally leave office when the lose elections in Africa. This did not used to be the case. Elections used to be rare. Today, they are common across Africa. They might not live up to the standards we are used to in Europe and North Africa but democracy is, nonetheless, spreading across the continent. With democracy comes accountability and with accountability comes better economic policies.

This is largely an overly rosy picture and we all know Africa’s problems: tribal conflicts, corruption, AIDS, bad infrastructure, an overreliance on foreign aid and so on. However, we all know this but it is all changing and in my view will continue to change in the coming decade. Therefore, I am optimistic.

Private provision of public goods – the case of money

One of the most interesting prospects for Africa in my view is how technology is helping to overcome some of Africa’s traditional problems.

For decades, Africa has been struggling with very weak government institutions. Consequently, the protection of property rights has been weak and, in general, there has been little respect for the rule of law. Even though this is changing, the process is often frustratingly slow. However, now it seems likely that technological developments could replace government institutions.

Take the telecom industry, for example. In most places in Africa, landlines have not worked well. This used to be a major problem. However, now mobile telephony is taking over. Private companies today are providing cheap and accessible telecom solutions to Africans. Today, more than half of all adult Africans own a mobile telephone.

In Kenya, today most economic transactions are carried out using the mobile-based electronic money M-pesa. In this sense, mobile-based money is taking over the role of cash-in-hand money and it is quite easy to imagine that mobile money will spread across Africa. Indeed, one could ask why M-pesa-style monetary regimes should not replace regular central banking – in the same way that mobile telephony has replaced out-dated dysfunctional landlines across Africa.

Another example is that mobile money has solved Zimbabwe’s so-called ‘coin problem’. After Zimbabwe effectively moved to dollarising the economy, the problem of a lack of dollar (and cent) coins emerged. However, this problem has now been solved with a private mobile phone-based solution.

Therefore, one could easily imagine the spreading of de facto Free Banking – private money issuance – across Africa as technological developments make this possible. In general, Africans are more likely to trust the money provided by international telecom providers such as Safaricom than they are to trust their own – often corrupt – central banks. Therefore, why not imagine a system of mobile-based free banking across Africa, with the mobile money being backed by, for example, the US dollar or even by Bitcoins or similar ‘quasi commodity’ money.

I am not trying to forecast what will happen to central banking in Africa but the development of M-pesa and the solution of the coin problem in Zimbabwe show that there are often private-based solutions to collective goods problems and as technology becomes cheaper and cheaper these solutions are increasingly likely to become accessible to African, which is likely to help boost African growth in the coming decade.

The (mobile) market just solved Zimbabwe’s “coin problem”

I wonder if any of my readers remember my post about how ““Good E-money” can solve Zimbabwe’s ‘coin problem’”.

In my post on Zimbabwe’s so-called “coin problem” I came up with a possible solution:

“This might all seem like fantasy, but the fact remains that there today are around 500 million cell phones in Africa and there is 1 billion Africans. In the near future most Africans will own their own cell phone. This could lay the foundation for the formation of what would be a continent wide mobile telephone based Free Banking system.

Few Africans trust their governments and the quality of government institutions like central bankers is very weak. However, international companies like Coca Cola or the major international telecom companies are much more trusted. Therefore, it is much more likely that Africans in the future (probably a relatively near future) would trust money (or near-money) issued by international telecom companies – or Coca Cola for that matter.

In fact why not imagine a situation where Bitcoin merges with M-pesa so you get mobile telephone money backed by a quasi-commodity standard like the Bitcoin? I think most Africans readily would accept that money – at least their experience with government issued money has not exactly been so great.”

Guess what – the power of the market will never disappoint you. See this story:

EcoCash, a mobile money-transfer service operated by telecommunications company EcoNet Wireless Zimbabwe, has reached a million subscribers in under six months since its launch, according to Mobile Money Africa. EcoCash enables money transfers across all networks between mobile users, a rapidly expanding sector of the Zimbabwean population.

And in a country where 80 percent of residents do not have access to mainstream bank accounts, a service that requires nothing but a mobile phone is a popular and more convenient alternative. Mobile phone users now make up 77 percent of the population, compared to just 6 percent in 2006, reports Mobile Money for the Unbanked. And EcoNet Wireless, EcoCash’s parent company, has that market cornered in Zimbabwe, with 6.5 million customers, which represents 70 percent of the market share of cell phone users, according to Mobile Money Africa….

….Within that segment, EcoCash has seen success by targeting the low-end market. Customers don’t need to have bank accounts, and 1,400 street agents throughout the country help make subscribing a quick and easy process. Agents receive a commission when customers total transactions reach $50, encouraging agents to target those likely to be actively using the service…

While the legalization of foreign currency in 2009 has pulled Zimbabwe’s previously plummeting economy out of a nose-dive, it’s also created challenges, including a shortage of change. The “coin problem” can make small transactions difficult to complete accurately, reported the New York Times, and small transactions tend to be the kind low-income users make. But now mobile cash services like EcoCash allow precise payment, regardless of the size of a transaction.

The ease of transactions is just one factor contributing to the skyrocketing popularity of EcoCash. Actual banks are more difficult to access than mobile phones, and the dark history of the Zimbabwean dollar contributed to widespread distrust of traditional banking services, reports the Zimbabwe Daily Mail.

…Visibility aids EcoCash in its market domination. EcoCash markets its services through advertisements on public mini-buses, known as kombis, in urban areas, and over radio talk shows in rural areas. Widespread marketing helps keep EcoCash ahead of other, smaller competitor. And while some competitors require users to have bank accounts, EcoCash allows customers to bank with just their phone.

…EcoCash modeled much of its strategy off of the success of Kenyan mobile money service M-Pesa, also under the umbrella of a telecommunications company,Safaricom. M-Pesa’s popularity has exploded in Kenya, with a customer base of close to 15 million subscribers, up from 2 million over five years.

Like EcoNet, M-Pesa’s parent company, Safaricom, dominates the telecommunications market in Kenya with a 67 percent market share, according to The Zimbabwe Independent. Like EcoCash, M-Pesa grew rapidly in its first year, although EcoCash’s first-year growth outpaced that of M-Pesa. And while Microfinance Africa reports that other countries have had difficulty replicating the long-term success of M-Pesa, similar marketing and business strategies and market domination make EcoCash a potential candidate to exhibit similar growth.”

PS I know I promised more posts on African monetary reform – I hope I soon will get to it…


UNrelated post: Please have a look at Mayor Bill Woolsey’s fantastic blog Monetary Freedom. Bill’s posts over the last two weeks are incredibly good!

Project African Monetary Reform (PAMR)

Project African Monetary Reform (PAMR) – post 1

The blogoshere is full of debates about US monetary policy and the mistakes of the ECB are also hotly debated. However, other than that there is really not much debate in the blogoshere about monetary policy issues in other countries. I have from I started blogging said that I wanted to broaden the monetary debate and make it less US-centric. Unfortunately I must say I also tend to write a lot about US monetary policy and there is no doubt that most of my readers are primarily interested in US monetary affairs. However, I still want to have a broader perspective on monetary theory, policy and history. Therefore as of today I am launching Project African Monetary Reform (PAMR).

I have no clue where PAMR will lead me other than I have a large interest in the African continent and it’s economies so why not combine it with my interest in monetary policy? My regular readers will know that I already have produced a number of posts related to African monetary issues. PAMR as such will not be a major change and I will not promise any regularity in my posts in the PAMR “series”, but I hope PAMR can be a framework within which I can write a bit more on African monetary matters. I will not get into the business of forecasting central bank behavior and market movements (I spend time on that kind of thing in my day-job), but I will hope to contribute to the discussion about monetary reform in Africa. Something still badly needed in many African countries.

In the process of studying monetary reform issues in Africa – we might even learn some good lessons for more “developed” economies like the US and the euro zone. So even if you are not interested in what is going on in Africa you might learn from tracking PAMR.

I therefore also would like to invite other economists, academics and policy makers with interest in African monetary reform to get in contact with me so we might be able to build a network of people with such interests. Furthermore, I would as always welcome guest posts concerning African monetary issues from other economists with special knowledge or interest in African monetary reform. I can be contacted at

Furthermore, I will invite you my dear readers to give me suggestions for the next post in the PAMR series. I want to take a look at the monetary policy set-up in a “random” African country. You my dear readers will make the choice on what country I should start with. But I rule out writing something on the three large ones: South Africa, Nigeria and Egypt. You can write the suggestion here or drop me a mail. I am all hears.

Some of my previous posts related to African monetary issues:

The spike in Kenyan inflation and why it might offer a (partial) solution to the euro crisis

“Good E-money” can solve Zimbabwe’s ‘coin problem’

M-pesa – Free Banking in Africa?


%d bloggers like this: