Benefits from the fixed exchange rate arrangement between the Namibian Dollar and the South African Rand outweigh the costs and consequences that would stem from de-linking and therefore is currently not an option considered by the central bank of Namibia.
De-linking the two currencies will lead to high inflation and negatively impact the Namibia’s current trade structures.
With regards to higher inflation the Bank of Namibia said in a statement that the country enjoys lower inflation than most Sub-Saharan countries and through fixing the peg rate, Namibia imports low inflation from South Africa.
“Namibia’s current trade structure shows that about 60 percent of goods in Namibia are imported from South Africa and unless this structure changes, the peg arrangement with the Rand continues to save the country substantive transactional costs.”
Besides inflation rates and trade structures tourism, travel and trade between Namibia and its southerly neighbor is boosted in both directions due to the absence of an exchange rate risk and this has a positive impact on the local economy overall.
BoN said the peg arrangement remains in the best interest of Namibia, as it continues to achieve the primary objective of price stability, through a peg exchange rate regime with an ultimate aim of promoting economic growth and development.
The central bank issued the statement after media reports started circulating in especially South Africa that Namibia was considering exiting from the currency peg arrangement which is currently one-to-one between the two currencies established as part of the Common Monetary Area Agreement.
“The bank has consistently, as part of its mandate and as the organ responsible for the implementation of the exchange rate arrangement, made it known that it conducts assessments on the sustainability of the current arrangement from time to time,” BoN Deputy Governor, Ebson Uanguta said in the statement released on Monday.
Uanguta added that the assessments that continue to inform its policy advice to Government, concluded that the benefits from the current fixed exchange rate arrangement between the two currencies outweigh the costs and will remain unchanged.