Rethinking 21st Century Monetary Policy for Africa 

Abstract

Now is the time for a critical reassessment of the role of monetary policy in the economic management of less developed economies. The unwarranted faith in the power of monetary policy as a panacea for financial woes, a belief history has repeatedly debunked, must be dispelled.

In this lecture, I argue that the nature and structure of the distinct economies that make up Africa–and the increasingly robust empirical research in economics–provide ample evidence of the inadequacy of existing monetary policy paradigms for many of Africa's economies. Where these paradigms have been helpful, it has often been because of their non-monetary policy aspects. This body of theory and accompanying policy recommendations are partly a product of economics' historical journey. Still, it is no accident that they have been more suitable for more developed economies. These are economies characterized by, among other things, solid institutions, relatively sophisticated and deep financial markets, and advanced money markets. They are economies which, for the most part, require the effectiveness of economic policy to be elevated over its efficiency. They are not about defining the policy space but about applying it.