ALTERNATIVE MONETARY SYSTEMS AND THE QUEST FOR STABILITY: CAN A FREE BANKING SYSTEM DELIVER IN SOUTH AFRICA?

Authors: SAVILLE, ADRIAN¹; BADER, MAUREEN²; SPINDLER, ZANE³

Source: South African Journal of Economics, Volume 73, Number 4, December 2005 , pp. 674-693(20)

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Abstract:

Once in a while you will stumble upon the truth but most of us manage to pick ourselves up and hurry along as if nothing had happened.

Winston Churchill Abstract

Since the early 1900s central banking has developed into the most widely adopted monetary regime by sovereign states. Yet, there is a broad raft of evidence which shows that central banking systems have been less successful in delivering macroeconomic stability than alternative monetary systems. The argument is pronounced in the case of emerging economies, a set of countries which includes South Africa. Against this backdrop, this paper reviews the case for central banking in South Africa. Our results lead us to explore various alternatives to central banking, including Dollarisation and monetary union. However, because these systems are not without their own vulnerabilities, we consider a third alternative regime, free banking. We argue that, despite being an almost completely forgotten system, free banking has the capacity to improve South Africa's monetary system and enhance the country's macroeconomic stability.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1813-6982.2005.00046.x

Affiliations: 1: Manager of Corporate Communications and Public Affairs, Prince Rupert Port Authority, Canada 2: Associate Professor of Economics and Finance, Gordon Institute of Business Science, University of Pretoria, South Africa 3: Professor of Economics, Simon Fraser University, Vancouver, Canada. During 2005, Professor Spindler was also Visiting Professor at Seikei University, Tokyo, Japan and University of Cape Town, Cape Town, South Africa.

Publication date: 2005-12-01