Monetary policy and central banking in sub-Saharan Africa

Abstract

The monetary landscape in sub-Saharan Africa has changed profoundly during the last three decades, from money financing of fiscal deficits in the 1980s to stabilization in the context of broad reform programs and de jure money-targeting regimes in the 1990s and, more recently, efforts to modernize policy frameworks. This chapter provides an overview of the issues facing central banks as they modernize. It places these efforts in their historical context, reviews the reasons for dissatisfaction with current regimes, and discusses the challenges facing central banks in SSA. These include the nature of the monetary transmission mechanism, the prevalence of supply shocks, the volatility of fiscal policy, and the management of aid and natural resource revenues. It discusses the role of the exchange rate and discusses appropriate modeling frameworks, as well as the role of central banks in the pursuit of financial stability and in the management of natural resource wealth.