Dollarization and Foreign Exchange Reserve: Debate on the Effectiveness of Monetary Policy in Democratic Republic of Congo

Abstract

The high degree of dollarization combined with low foreign exchange reserves obstruct the management of monetary policy. The debate is launched on the effectiveness of monetary policy in this context of dollarization and meager reserves. To restore the effectiveness of monetary policy in the Democratic Republic of Congo, we advocate for fiscal discipline (that is to say, eradicate fiscal dominance) that is constant and sustainable, a guarantee of sustainable macroeconomic stability. Monetary targeting should remain the adopted strategy until proven otherwise and the choice of a floating exchange rate regime is better for good macroeconomic management in the case of the Democratic Republic of Congo. However, changes in the nominal exchange rate should be implicitly included in the implementation of monetary policy.