A Cost-Benefit Analysis of Monetary Integration The Case of Lesotho, Namibia, and Swaziland in the CMA

This paper investigates the cost and benefits of the smaller member countries in Southern Africa on their participation in the currency area, namely the Common Monetary Area (CMA). Monetary unification may help economic integration; this in part is viewed as a way of improving macroeconomic man-agement for the various member countries involved. To this effect, it was found that given the high degree of openness of the economies of Lesotho, Namibia and Swaziland (LNS) and their small size, the use of nominal ex-change rate as an instrument of adjustment will render limited impact. For that reason, the current peg to the Rand affords greater benefits than costs to the LNS countries. Nonetheless, if the South African economy becomes unstable at any point in time, this will have major repercussions to the rest of the CMA given its powerful muscle in the current arrangement and the degree of de-pendency of the LNS countries on the anchor economy. Furthermore, fiscal consolidation within the currency area is deemed necessary and the manage-ment of fiscal accounts should be highly considered for the LNS economies as this also leads to more synchronized business cycles between member coun-tries.