Understanding the levels of central bank independence in the SADC and their impact on policy descision making

Abstract

The aim of this study was to understand the influence of Central Bank Independence on policy decision making in the SADC. The study made use of an interpretivistic research paradigm and followed a mixed method approach using an interpretative- Quantitative methodology. A literature review based on books, articles, previous research projects and the internet was done in order to gain a better understanding of central bank independence. Secondly the various central bank acts of the SADC member countries were studied in order to determine the level of independence that each central Bank have. It was found that most of the SADC Central banks do not have a high degree of independence. Various indexes were used to quantify the levels of independence among the various central banks. Substantial differences exist in the level of independence among the various central banks. This makes the feasibility of successful monetary policy convergence within the SADC very unlikely. Any monetary convergence would have to include a unified legal framework within which monetary policy will be executed. The ultimate aim of monetary convergence is a single currency and a single central bank. In order for the process of monetary policy convergence to move forward within the SADC reforms to the current central bank legislation will have to be undertaken. Legislation will have to ensure central bank independence within member countries. It is suggested that central bank independence also be entrenched in the constitutions of the various countries.