The International Monetary Fund (IMF) has criticized African central banks for disposing of their foreign exchange reserves in an ineffective attempt to regulate their currencies.
Abebe Selassie, head of the IMF's Department director, stated in his keynote speech at the 45th Assembly of Governors Association of African Central Banks that their exchange rate regulations are rigid. "Central banks have for the most part responded to the pressures they faced by selling reserves and not as much by allowing exchange rate depreciation. These will not ease inflation nor stabilize currencies,'' Abebe Selassie stated.
He claims that this type of exchange rate strategy has been extremely costly. "In particular, there has been quite a pronounced decline in foreign exchange reserve in the region, problematic of course given the level of reserves in most countries were on the low side,'' the department director relayed.
Abebe remarked that remnants of the convoluted monetary and exchange rate policies that were in place in several nations throughout the 1980s had reappeared, doing more harm than benefit. "In the face of the brutal exogenous shocks that countries have faced, many of you have been caught between a rock and a hard place and had to make invidious tradeoffs. The question is whether these tradeoffs are optimal,” he added.
Parallel foreign currency markets have so reemerged, and where they had already been present, their spreads have greatly increased. He urged the nations in the area to increase their exports, claiming that doing so was the only way to guarantee a consistent flow of foreign exchange.
The regional management of the IMF stated that despite generally high economic performance and progress in many other development indicators, the proportion of global exports has remained meager. His stern words at the governor's meeting come at a time when several nations, including Kenya, have witnessed significant depreciation in their currencies relative to important international legal tenders.