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Capital Controls, Two-tiered Exchange Rate Systems and the Exchange Rate Policy: The South African Experience

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  • Schaling, E.

    (Tilburg University, Center for Economic Research)

Abstract

South 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 Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-110.

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Date of creation: 2005
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Handle: RePEc:dgr:kubcen:2005110

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  1. Martin Feldstein, 1999. "Self-Protection for Emerging Market Economies," NBER Working Papers 6907, National Bureau of Economic Research, Inc.
  2. 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.
  3. R. M. Gidlow, 1976. "Exchange Control and the Blocked Rand Mechanism," South African Journal of Economics, Economic Society of South Africa, vol. 44(1), pages 52-58, 03.
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Cited by:
  1. 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.

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