Eswatini (before 2018, Swaziland)continued to use the South African rand as currency, but issued its own (fully backed by reserves) from 1974, with rand and lilangeni sharing legal tender status and Swaziland being compensated for the loss of seigniorage from circulation of the rand. In 1986 the rand ceased to be legal tender, which could have facilitated an independent monetary policy, but in practice little changed and the rand was restored to its previous position in 2003.

YearsTargets and attainmentClassification
1974small open economy with very strong economic ties to South Africa (SA) including common membership of the Southern African Customs Union (SACU); long use of SA rand as currency (before and after independence in 1968)use of another sovereign’s currency UASC
1975-2017in course of negotiations (concluded December 1974) on formalising arrangements for Rand Monetary Area (RMA) government decides to introduce its own currency: notes and coin issued from September 1974 at par with rand by new Monetary Authority of Swaziland, lilangeni shares legal tender status in Swaziland with rand; Swaziland commits to 100% backing of lilangeni by deposits at South Africa Reserve Bank (from 1977 up to 10% can be SA government securities), has minimal input into SA Reserve Bank decisions and no control over its exchange rate with the rest of the world, and applies SA exchange controls, but SA commits to compensate Swaziland for seigniorage forgone by continued use of rand; two major banks which were foreign-owned but 1973 government takes significant stakes, state-controlled development bank, a few other financial institutions; from 1973 treasury bills and medium-term stock issued, financial institutions subject to minimum local asset and liquidity ratios and from 1975 to reserve requirements; country’s foreign reserves managed partly by government which is also large net creditor of banking system; lilangeni is introduced by encouragement rather than by fiat, its circulation rises to significant share of total currency in circulation (though no data on amount of rand held in country) but agreement of SA government to compensate Swaziland for income forgone from use of rand leads Swazi government not to push for wider use of lilangeni; monetary authority discount facility available from 1976 but little used; 1979 monetary authority replaced by central bank with similar functions, monetary policy continues (inevitably) to be passive; 1982 lilangeni circulation estimated to be 80% that of rand, while residents bank in rand in other parts of RMA; 1986 following sharp fall of rand 1984-5 renegotiation of what is now Common Monetary Area (CMA) ends rand’s status as legal tender in Swaziland, need for lilangeni to be backed by rand and requirement for SA to compensate Swaziland for its use of rand; this opens possibility of an independent monetary and exchange rate policy, but little change in reserve coverage, official and market interest rates move broadly in line with those in SA, rand still circulates freely (estimated in 2002 at 35-50% of currency in circulation) and peg to rand is maintained with very narrow spreads; short-term liquidity absorption certificates introduced 1989; forex reserves diversified early 1990s; end of apartheid in and sanctions on SA erodes former attractiveness of Swaziland for FDI; high prevalence of HIV/AIDS from 1990s hits labour supply and economic growth; issues of rising fiscal deficits and excess liquidity in banking system mid-1990s, weakness in banking system late 1990s; 2001 increase in central bank independence, new electronic payments system, relaunch of state-owned development bank, but bond and money markets remain limited; wider issues of governance not resolved by new constitution 2005; 2000s rises in fiscal deficit and falls in international reserves; 2003 rand regains legal tender status, in light of evidence of increasing usage, Swaziland will again receive compensation for seigniorage forgone; weekly treasury bill auctions from late 2003; from 2009 recurring fiscal deterioration partly due to falls in revenues from SACU, at times financed by central bank lending; financial stability gradually becomes major issue, needing improved supervision of both bank and non-bank financial institutions; statistical data initially weak but improveaugmented exchange rate fix AERF

Selected IMF references: The Rand Monetary Area and the Monetary Systems of Botswana, Lesotho and Swaziland, 1976, pp1-7, 16-21; RED 1974 pp7-9; SR 1974 pp9-11; RED 1976 pp32-8, 42-5; RED 1977 p39; RED 1981 p45; RED 1982 pp46n, 48; The Rand Monetary Area, 1983, pp10-11; SR 1986 pp2-3, 23-6; RED 1987 pp25, 28, 37; RED 1989 pp29, 40; SR 1995 pp10-11; RED 1997 p25; SR 1997 pp15-16; SR 1998 pp14-16; SR February 2002 p 16; SISA 2002 pp23, 27, 28; SR November 2002 pp16-17; SR 2005 pp21-2; SR 2006 pp6-10, 17; SR 2011 p12; SR 2017 pp4-6.

Other references: Wolf et al. (2008, p. 46); Masson and Pattillo (2005, pp24-6, 65-6); Central Bank of Eswatini (2017).

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