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Central banks and debt: emerging risks to the effectiveness of monetary policy in Africa?

Author

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  • Benedicte Vibe Christensen
  • Jochen Schanz

Abstract

In a period of rising trade protectionism and higher interest rates abroad, there is renewed urgency to ensure that debt, already on an upward path, does not impede the effectiveness of monetary policy in African countries. While central banks can affect the level and composition of debt held or owed by the financial sector if they have supervisory powers, they can only influence government debt indirectly, notably through communications. Advising the government and state-owned companies on debt management and macroeconomic developments might help slow a build-up in debt. Should debt nevertheless rise, certain institutional arrangements, such as rules against direct funding of the government budget, setting an inflation target for monetary policy, and operational independence, could help protect the effectiveness of monetary policy. Pursuing reforms that implement such arrangements could be one way forward for some African central banks.

Suggested Citation

  • Benedicte Vibe Christensen & Jochen Schanz, 2018. "Central banks and debt: emerging risks to the effectiveness of monetary policy in Africa?," BIS Papers, Bank for International Settlements, number 99.
    • Handle: RePEc:bis:bisbps:99
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    References listed on IDEAS

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    1. Stefan Avdjiev & Valentina Bruno & Catherine Koch & Hyun Song Shin, 2019. "The Dollar Exchange Rate as a Global Risk Factor: Evidence from Investment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 151-173, March.
    2. Benedicte Vibe Christensen, 2016. "Challenges of low commodity prices for Africa," BIS Papers, Bank for International Settlements, number 87.
    3. Valentina Bruno & Hyun Song Shin, 2015. "Cross-Border Banking and Global Liquidity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 535-564.
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