Front Matter

Front Matter

Stella Kaendera, S. V. S. Dixit, and Nabil Ben Ltaifa
Published Date:
December 2009
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    ©2009 International Monetary Fund

    Production: IMF Multimedia Services Division

    Typesetting: Alicia Etchebarne-Bourdin

    Cataloging-in-Publication Data

    Ben Ltaifa, Nabil.

    Impact of the global financial crisis on exchange rates and policies in Sub-Saharan Africa/ Nabil Ben Ltaifa, Stella Kaendera, and Shiv Dixit.—Washington, D.C.: International Monetary Fund, 2009.

    • p.; cm.—(African departmental paper; 09-3)

    • Includes bibliographical references.

    • ISBN-13: 978-1-58906-796-7

    1. Foreign exchange rates—Africa, Sub-Saharan. 2. Global Financial Crisis, 2008—2009. 3. Financial crises—Africa, Sub-Saharan. I. Kaendera, Stella. II. Dixit, Shiv. III. International Monetary Fund. IV. Title. V. African departmental paper; 09-3.

    HG3982.B46 2009

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    Executive Summary

    The currencies of many sub-Saharan African countries, like those of many emerging and developing economies, suffered large depreciations with the onset of the global financial crisis. Collapsing trade and financial flows led to substantial balance of payments gaps, triggering fast depreciations and higher exchange rate volatility, beginning in mid-2008. The exchange rate losses varied largely commensurate with the extent and nature of each country’s exposure to trade and global financial markets.

    The new external environment raises challenges for both floating and managed currencies. Countries with managed exchange rates have faced costs in leaning against exchange rate movements resulting in wider margins in the appreciation of their real exchange rates. Such an outcome could harm competitiveness and undermine long-term sustainability if their real effective exchange rates significantly deviate from their equilibrium levels. Countries with floating currencies have faced increasing exchange rate and price volatility, which could also deter long-term investment. The prospect of continued exchange rate volatility raises particular challenges for those countries seeking to enhance their integration with international capital markets. Deepening domestic capital and foreign exchange markets would enhance their capacity to handle external financial volatility over the long term.

    Additional measures could be explored to mitigate the impact on exchange rates. These include, in particular, limited intervention backed by appropriate aggregate demand policies and increased regional trade. Capital controls are also attracting renewed interest, but related enforcement capacity requirements and potential adverse effects on domestic intermediation make them a challenging option.

    The authors would like to thank Ms. Martine Guerguil for her support and guidance and the participants of the African Department external sector network seminar for their helpful comments.

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