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

E. Schaling

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    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.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherVakgroep CentER
    Number of pages45
    Volume2005-110
    Publication statusPublished - 2005

    Publication series

    NameCentER Discussion Paper
    Volume2005-110

    Keywords

    • capital controls
    • exchange rate mechanism

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    Schaling, E. (2005). Capital Controls, Two-tiered Exchange Rate Systems and the Exchange Rate Policy: The South African Experience. (CentER Discussion Paper; Vol. 2005-110). Vakgroep CentER.