Capital Controls, Two-tiered Exchange Rate Systems and the Exchange Rate Policy: The South African Experience
AbstractSouth Africa's 40 years of experience with capital controls on residents and non-residents (1961-2001) reads like a collection of examples of perverse unanticipated effects of legislation and regulation.We show that the presence of capital controls on residents and non-residents, enabled the South African Reserve Bank (SARB) to target domestic interest rates (and or the exchange rate) via interventions in the (commercial) foreign exchange market.This provides an early rationale for anchoring SA monetary policy via the exchange rate, rather than via domestic interest rates.This suggests not only that the capital controls themselves exhibited substantial institutional inertia, but that this same institutional inertia also applied to the monetary policy regime.A plausible reason for this is that for most of the 20th century in South Africa (partial) capital controls and exchange rate based monetary policies were like Siamese twins; almost impossible to separate.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-110.
Date of creation: 2005
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capital controls; exchange rate mechanism;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-AFR-2005-11-19 (Africa)
- NEP-ALL-2005-11-19 (All new papers)
- NEP-IFN-2005-11-19 (International Finance)
- NEP-MAC-2005-11-19 (Macroeconomics)
- NEP-MON-2005-11-19 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Martin Grandes & Marcel Peter & Nicolas Pinaud, 2003. "The Currency Premium and Local-Currency Denominated Debt Costs in South Africa," OECD Development Centre Working Papers 230, OECD Publishing.
- Martin Feldstein, 1999. "Self-Protection for Emerging Market Economies," NBER Working Papers 6907, National Bureau of Economic Research, Inc.
- Huizinga, Harry & Schaling, Eric & van der Windt, Peter C, 2007.
"Capital Controls and Foreign Investor Subsidies Implicit in South Africa's Dual Exchange Rate System,"
CEPR Discussion Papers
6347, C.E.P.R. Discussion Papers.
- Windt, P.C. van der & Schaling, E. & Huizinga, H.P., 2007. "Capital Controls and Foreign Investor Subsidies Implicit in South Africa's Dual Exchange Rate System," Discussion Paper 2007-91, Tilburg University, Center for Economic Research.
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