Mauritania

Mauritania, whichhad recently left the franc zone, fixed its new currency for ten years to a basket, with limited use of direct monetary policy instruments. From 1984 to 2017 it changed its exchange rate much more often, and made some moves towards indirect monetary instruments, but monetary policy remained largely passive, monetary transmission weak or non-existent, and the foreign exchange market inefficient.

YearsTargets and attainmentClassification
1974-83Mauritania had left franc zone in 1973, setting up its own central bank and currency, initially pegged to French franc at equivalent of old rate, but from January 1974 pegged to basket (consisting of USD and four European currencies, equally weighted) with USD as intervention currency; central bank relies mainly on prior credit authorisation and rediscount facilities, interest rates rarely varied; central bank loans to government subject to limits; basic financial system, most banks majority government-owned; 1977 basket widened to cover more currencies, now trade-weighted; 1982 small depreciation vs basket; disruption from Western Sahara war in 1970s, occasional domestic coups and/or political conflicts in later years; extensive foreign borrowing, but monetary growth sometimes drives fiscal deficits; 1980 development bank establishedaugmented exchange rate fix AERF
1984-20171984 major change in basket weights, temporary broken rates in effort to undo appreciation (with USD) in context of worsening fiscal and external balances, while limits on lending to government eased; 1985-9 comprehensive stabilisation and structural reform effort, partly successful, includes repeated depreciations to correct overvaluation, rise in interest rates, and some bank restructuring and privatisation; 1990-92 fiscal-monetary policy slippages and continuing bank weaknesses, but moves towards indirect monetary control via creation of interbank money market, introduction of reserve requirements, ending of extra rediscount facilities above standard rediscount ceilings; late 1992 stabilisation and structural reform package including some forex liberalisation, large depreciation and temporary ‘free’ market in addition to official rate (and parallel market); 1994 periodic treasury bill auctions; further bank restructuring; end-1995 official and free exchange rates unified, determined in interbank forex market (with some continuing frictions); 1996 credit controls ended, some interest rates liberalised; monetary policy is focused mainly on inflation, competitiveness and forex reserves and relies more on treasury bill auctions and repos, with changes to improve operation of market; more depreciation 1997-8; 2000 integration of commercial bank and foreign exchange bureaux elements of forex market, rate managed in pursuit of competitiveness; banks rely on large government deposits and lend only to a few related firms, in context of very low monetisation; accumulation of government deposits in commercial banks and risks involved, issue of potential transfer to central bank; central bank liquidity forecasting poor; forex market inefficient; 2003-4 attempted coup, major policy slippages, rise in parallel market premium; 2005 successful coup leading to new constitution and elections 2006-7; large and long-standing data misreporting revealed, including fiscal, monetary, external sector and GDP data; central bank financing of budget ended; 2007 start of forex auctions, parallel market premium shrinks; efforts to improve financial intermediation; 2008 coup, 2009 presidential election won  by coup leader and accepted internationally, economic disruption temporary; monetary policy now focused in principle on containing inflation in context of greater exchange rate flexibility, but in practice policy remains largely passive, transmission poor and forex market distorted; widely varying liquidity in banks, which still serve only small part of population; major terms of trade shock 2014-15 from fall in metals prices (hitting iron ore exports); longstanding aims of modernising monetary policy framework and forex market, but implementation repeatedly delayed; efforts to improve statistics, especially after misreporting scandal, but weaknesses remainloosely structured discretion LSD

Selected IMF references: RED 1975 pp32, 47-8, 51-5; SR 1976 pp8-9; RED 1978 pp33-4; RED 1980 pp46-7; RED 1982 pp34-5, 57; RED 1984 pp45-6, 74-5; RED 1985 pp31, 48-9; SR 1987 pp7-9; RED 1989 pp28-30; SR 1991 pp2-3, 10, 13, 16-17; RED 1992 pp16-18; SR 1993 p8; RED 1995 pp15-18, 25-6; SR 1995 pp24-5; SR 1996 pp10, 22; SR 1997 pp7, 8, 10-11; RED 1999 pp28-9, 41-4, 50; SR 2000 pp17-20; SI 2002 pp12, 18-19, 29-34, 35-7, 47-9; SR 2002 pp16-19; SR 2003 pp7, 15-18, 25; SR 2005 pp4-10, 12; SR 2006 pp4-8, 11; SR 2008 pp6, 13; SR June 2011 pp12-13; SR June 2012 pp12-13; SR 2013 pp15-17; SR 2015 pp17-20; SR 2016 pp9-12; SR July 2017 pp13-15, 19, 21; SR May 2018 pp5, 9-10.

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