Political sketch
Formerly Bechuanaland, also known as British Bechuanaland and Bechuanaland Protectorate. Independent from the United Kingdom on 30 September 1966.
The discovery of gold in nearby areas in 1867 excited British interest in Botswana. On 1 September 1885 the region became the British Bechuanaland Protectorate. The next year the area to the south of the Molopo River became a crown colony, and it was annexed by the Cape Colony a decade later. Bechuanaland itself continued as a British protectorate. At independence on 30 September 1966, Bechuanaland became Botswana. The government has been democratic and efficient throughout Botswana's existence as an independent country. Diamond mining began in 1972 and has become a motor of economic activity. Botswana has long had strong economic links to South Africa in trade, transport, and finance. During the period of white minority rule in South Africa, which ended in 1991, Botswana had to balance its economic dependence on South Africa with its sympathy for black guerilla movements in neighboring South Africa, Rhodesia (now Zimbabwe), and South West Africa (now Namibia). Since independence, Botswana has become the most successful case of economic development in Africa.
Wars since 1500
None.
Convertibility
The sterling area:
On 2 August 1914, soon after the First World War began, the United Kingdom issued a proclamation imposing a one-month moratorium of payment for bills of exchange accepted before 4 August; an act of 3 August 1914 gave legislative sanction to the proclamation. The moratorium was subsequently extended for a month and ended on 4 November 1914. Legally the pound sterling remained convertible into gold and could be exported, but the risk to shipping from German submarines made the cost of shipment prohibitive, so the United Kingdom was in effect off the gold standard. The British government refused to include private shipments of gold in its war-risk insurance scheme. After the war, the export of gold was prohibited from 1 April 1919 under regulations that were given statutory form in 1920. On 28 April 1925 the government announced that the act would not be renewed when it expired on 31 December 1925. On 13 May 1925 the United Kingdom resumed the gold standard.
The United Kingdom abandoned the gold standard on 21 September 1931. The currencies of British colonies were almost all linked to the pound sterling through currency boards; being on a sterling-exchange standard rather than a gold-exchange standard, they followed the pound sterling off gold. Over the next few years, some former British colonies (Australia, New Zealand, South Africa) and other countries that had important trade links with the United Kingdom switched from gold to the pound sterling as their official or actual anchor. The result was termed the sterling area. The United Kingdom imposed exchange controls on 4 September 1939, the day after entering the Second World War. Most countries that were not current or former British colonies soon left the sterling area. Among the remaining countries, both current- and capital-account transactions were free of restrictions within the sterling area, but were restricted in dealings with outside countries. After the Second World War, the United Kingdom returned to the gold standard under the Bretton Woods system. It removed exchange controls on 15 August 1947, but reimposed them on 20 August 1947 after suffering a large loss of foreign reserves. Sterling had a dual exchange rate from 1961 until the United Kingdom abolished exchange controls. The sterling area remained in existence because sterling was not fully convertible. It began to crumble after the United Kingdom again abandoned the gold standard on 23 June 1972. On that date, Botswana, Lesotho, South Africa, and Swaziland ceased being members of the sterling area; so did Namibia (then South West Africa), since it was subject to South African exchange controls. By January 1973 the sterling area had shrunk to the British Isles and a few small British colonies; even Hong Kong had abandoned sterling as its anchor currency. The United Kingdom abolished exchange controls on 24 October 1979, ending the sterling area.
The Rand Monetary Area (later Common Monetary Area):
Initially, Bechuanaland (now Botswana), Basutoland (now Lesotho), and Swaziland used South African currency and had no separate domestic units of account. Until 13 February 1961, South Africa's currency was called the pound; since 14 February 1961 it has been called the rand. In Namibia, then called South West Africa, three South African commercial bank issued notes from 1915 to 1961, but the unit of account was the South African pound; the other countries used notes issued by the South African Reserve Bank after it began issuing notes in 1922. These countries had a customs union and, by informal agreement, common exchange controls. Initially, South Africa paid no seigniorage to the other countries for using the rand. The Rand Monetary Area, established in 1974 (and renamed the Common Monetary Area from 1986) joined South Africa, Lesotho, Namibia, and Swaziland in a formal agreement. Botswana decided not to join, though it remained a member of the rand zone for purposes of exchange control until 1976.
South Africa imposed exchange controls for all countries outside the sterling area on 9 September 1939, shortly after the Second World War began. On 1 July 1949 it established a licensing system that restricted imports from the sterling area other than Northern and Southern Rhodesia (Zambia and Zimbabwe). Compulsory surrender of sterling area currencies existed from 21 February 1956-27 February 1957, and was reintroduced 8 May 1958. Exchange controls intensified during 1961 (the legislative basis for subsequent exchange control being South Africa, "Exchange Control Regulations, Orders and Rules 1961," Government Notices R1111 and R1112 of 1 December 1961, issued in terms of South Africa, Currency and Exchanges Act, Act No. 9 of 1933). South Africa has been liberalizing exchange controls since 1995, but some persist today (2005).
Botswana alone:
Botswana abolished all exchange controls as well as all repatriation and surrender requirements on 8 February 1999.
Other
Defaults on or restructurings of debt to the private sector (mainly from Purcell and Kaufman 1993 and Standard & Poor's 2004): None.
Reinhart and Tokatlidis (2000: 33) dating of recent financial liberalization: Domestic (notably interest rates) 1991, external (notably foreign-exchange market and participation by foreign financial institutions) 1995.
Banking crises (data since 1970s mainly from Caprio and Klingebiel 1999 and Frydl 1999): Moderate problems 1994-1995.
Frankel and Rose (1996) list of currency crashes: 1985.
References
Primary sources:
--Laws and decrees:
Bechuanaland (Protectorate). Gazette. 1886-1887, 1963-1966. Vryburg Advocate and Bechuanaland Gazette (1886); Vryburg Advocate and Government Gazette for British Bechuanaland (1886); Vryburg Advocate and Bechuanaland Gazette (1887); Botswana Government Gazette. Vryburg, Cape Province, South Africa (1886-1887); Gabarones [Gaborone] (1963-1966). (The Cape of Good Hope gazette printed Bechuanaland notices after the first period, while the Botswana gazette succeeded the second period.)
Botswana. Gazette. 1966-present. Botswana Government Gazette. Gabarone: Botswana Government Printer. (Successor to second period of the Bechuanaland gazette.)
Cape of Good Hope. Gazette. 1800-1910. The Cape Town Gazette and African Advertiser (Kaapsche stads courant en afrikaansche berigter), later Government Gazette. Cape Town. (Printed Bechuanaland notices 1888-1895; succeeded by Great Britain, High Commissioner's gazette.)
Great Britain (United Kingdom). Gazette. 1665-present. Oxford Gazette (1996-1666); London Gazette (1666-present). Oxford (1665-1666); London (1666-present): His/Her Majesty's Stationery Office from 1903. Online at <http://www.gazettes.online.co.uk>; as of September 2005, gazettes since 1900 are available.
Great Britain (United Kingdom). High Commissioner for Basutoland, the Bechuanaland Protectorate and Swaziland. Gazette. 1910?-1963. Official Gazette of the High Commissioner for Basutoland, the Bechuanaland Protectorate and Swaziland. Pretoria: Government Printer. (Successor to Cape of Good Hope gazette for printing Bechuanaland notices; succeeded by Bechuanaland gazette.)
South Africa. Gazette. 1901-1909. Official Gazette of the High Commissioner for South Africa. Pretoria: Government Printer. (May have contained some notices for Bechuanaland; succeeded by Great Britain, High Commissioner's gazette.)
--Publications of monetary authorities:
Bank of Botswana. Annual report. 1975-present. Annual Report (1975-1996); Annual Report and Economic Review (1997-2001); Annual Report (2002-present). Gaborone: Bank of Botswana. (Includes a September 1996 special issue on the Botswana pula.)
Bank of Bostwana. Bulletin. 1983-present. Bulletin (1983-1993); The Research Bulletin (1994-present). Gaborone: Bank of Botswana.
Bank of Bostwana. Review. 1986-1993? Review of Economic Developments. Gaborone: Bank of Botswana.
South African Reserve Bank. Annual report. 1920/1921-present. Report of the First [etc.] Ordinary General Meeting (1920/1921-1981/1982); Report of the Sixty-Second [etc.] Ordinary General Meeting of Stockholders (1982/1983-1986/1987); Report of the Sixty-Eighth [etc.] Ordinary General Meeting of Shareholders (1987/1988-present). Pretoria: South African Reserve Bank. (Some years also in Afrikaans.)
South African Reserve Bank. Bulletin. 1946-present. Quarterly Bulletin of Statistics / Statistiese Kwartaalblad (1946-1965); Quarterly Bulletin / Kwartaalblad (1966-1999); Quarterly Bulletin (no Afrikaans text) (1999-pressent). Pretoria: South African Reserve Bank.
South African Reserve Bank. Economic report. 1960/1961-present (annual). Annual Economic Report. Pretoria: South African Reserve Bank.
--Web site of the current monetary authority (viewed 20 September 2005):
<http://www.bankofbotswana.bw>
--Other publications or Web sites:
South Africa. Official yearbook. 1917-1960, 1974-present. Union Office of Census and Statistics (1917-1949); Bureau of Census and Statistics (1950-1960): Department of Information (1974-1993); South African Communication Service (1994-present). Official Year Book of the Union (1917-1918); Official Year Book of the Union and of Basutoland, Bechuanaland Protectorate and Swaziland (1919-1960); South Africa 1974 [etc.]: Official Yearbook of the Republic of South Africa (1974-1993); South Africa Yearbook (1994-present). Pretoria: Government Printing and Stationery Office (1917-1960); South African State Department of Information (1974-1993); South African Communication Service (1994-present).
Main secondary sources:
Bank of Botswana. 1985. Bank of Botswana Tenth Anniversary, 1975-1985. Gaborone: Bank of Botswana.
Bhuiyan, Muhammad N., editor. 1987. Selected Papers on the Botswana Economy. Gaborone: Research Department, Bank of Botswana.
Chalmers, [Sir] Robert. 1893. A History of Currency in the British Colonies. London: Eyre and Spottiswoode for Her Majesty's Stationery Office. (Brief information on the early years of Botswana's modern monetary history.)
Henry, J[ames] A., and H. A. Siepmann. 1963. The First Hundred Years of the Standard Bank. London: Oxford University Press. (The Standard Bank operated widely in Africa
IMF ARER. 1950-present. International Monetary Fund. Annual Report on Exchange Restrictions (1950-1978), Annual Report on Exchange Arrangements and Exchange Restrictions (1979-1988), Exchange Arrangements and Exchange Restrictions: Annual Report (1989-present). Washington: International Monetary Fund. (Contains information on IMF member countries and some of their dependencies.)
Salkin, J. S., and others, editors. 1997. Aspects of the Botswana Economy: Selected Papers. Gaborone, Botswana: Lentswe La Lesedi.
Monetary authorities: Botswana
| Dates | Type | Name | Source | Remarks |
| May 1897
-22 August 1976 (see Remarks) |
dollarization (no permanent commercial banks until 1950; see Remarks) | South African currency (pound to 13 February 1961, rand from 14 February 1961) (issued by central bank South African Reserve Bank [headquarters Pretoria, South Africa]) | Bechuanaland Protectorate, Proclamation No. 5 of 1895, cited in Bank of Botswana bulletin, September 1996: 1; Proclamation No. 73 of 1960; United Kingdom, Standard Bank of British South Africa (later Standard Bank of South Africa) Memorandum of Association, 13 October 1862, cited in Henry and Siepmann (1963: 5) | The first bank was the Standard Bank of South Africa (headquarters London, England), in Francistown, in May 1897. The branch was open and issued notes for just a few months, not long enough to be called a true free banking episode. The bank established another short-lived branch in Francistown from 1934-1935, then a branch in Gaborone starting 1950, which was the first permanent bank in the country. The second bank was Barclays Bank (Dominion, Colonial and Overseas) (headquarters London, England), in Lobatsi, on 18 August 1950. In the period without banks both the Standard Bank and Barclays sent traveling offices to Lobatsi once a week from Mafeking to provide banking services. A branch of the South African Post Office Savings Bank was established in 1911. (All this information is in Bhuiyan 1987: 46) |
| 23 August 1976
-present (2005) |
central bank | Bank of Botswana or Banka Ya Botswana (headquarters Gaborone, Botswana) | Botswana, Bank of Botswana Act, No. 7 of 1975, cited in Bank of Bostwana annual report 1975: 2; Bank of Bostwana annual report 1976: 7, for start date of period | Established a central bank to earn seigniorage and gain greater economic independence from South Africa, then under white minority rule. Botswana's president gave a speech on 6 September 1974 announcing the intention to witdraw from the Rand Monetary Area (Bank of Bostwana annual report 1975: 2). Certain provisions of the Bank of Botswana Act entered into force on 1 July 1975, but the central bank only began acquiring assets in January 1976 (Bank of Bostwana annual report 1975: 2). I date the start of the central banking period from the date a new national currency, issued by the central bank, entered circulation.The new currency included Botswana's first local coins. Botswana joined the IMF on 24 July 1968. |
Exchange rate arrangements: Botswana
| Dates | Official arrangement | Source | Unofficial arrangement, if different | Remarks |
| 6 October 1885
-13 May 1961 |
fixed; used currency rated by Cape of Good Hope; later used South African pound [consider whether to make this latter a separate entry] | Bechuanaland Protectorate, Proclamation No. 2, 6 October 1885, cited in Chalmers (1893: 239); Proclamation No. 54 of 1932 and Proclamation No. 3 of 1933, both cited in South Africa official yearbook 1931/1932: 1023 | The currency laws applying to the Cape of Good Hope were extended to Botswana by the 1885 proclamation. Present-day Lesotho, Namibia (from 1915), Swaziland, and, until 1976, Botswana all used currency accepted in the Cape of Good Hope province, and later South African currency. They all also had common exchange control regulations. Until the 1920s this meant they used British coins. The 1932 proclamation made South African currency legal tender along with British currency; while the 1933 proclamation made South African currency the currency of Botswana, displacing British coins. Zimbabwe (Southern Rhodesian) currency circulated at par in the northern part of Botswana at least through the early 1950s. Recall that in monetary systems of the United Kingdom and its colonies at the time, £1 = 12 shillings (s.) and 1 shilling = 12 pence (d.), so £1 = 240d. | |
| 14 February 1961
-22 August 1976 |
fixed; used South African rand | Bechuanaland Protectorate, Proclamation No. 73 of 1960, cited in Bank of Botswana bulletin, September 1996: 1 | South Africa introduced a flexible second exchange rate on 2 February 1976 that ceased on 1 September 1985, long after Botswana had quit the Rand Monetary Area. | South Africa introduced a new currency at 2 South African rand = South African £1 as part of the decimalization of its currency. |
| 23 August 1976
-29 April 1977 |
pegged; 1 Botswana pula = US$1.15 | Botswana, Bank of Botswana Act, No. 7 of 1975, cited in Bank of Bostwana annual report 1975: 2; Bank of Bostwana annual report 1976: 7, for start date of period | Botswana introduced its own currency at the prevailing cross rate with the South African rand, so initially 1 Botswana pula = 1 South African rand. Pula means "rain" or "blessing" in the local Tswana language. Botswana ceased adherence to common exchange control regulations with South Africa when it introduced the pula. The rand continued to be accepted at 1-to-1 with the pula through 30 November 1977. Botswana never registered a gold parity with the IMF, since the system of gold parities was in practice inoperative by this time and officially ended by agreement of IMF members on 1 April 1978 (International Monetary Fund, Board of Governors, Resolution No. 31-4, 30 April 1976 ["Second Amendment"]). | |
| 30 April 1977
13 September 1979 |
pegged; 1 Botswana pula = US$1.2075 | Botswana, government decision announced by vice president, 30 April 1977, cited in Bank of Botswana annual report 1977: 13 | Appreciated against the US dollar to offset the weakness of the dollar at the time. The cross rate with South African rand was approximately 1 Botswana pula = 1.05 South African rand. The South African rand was itself pegged to the dollar until 29 January 1979. | |
| 14 September 1979
-1 June 1980 |
pegged; 1 Botswana pula = US$1.2679 | Bank of Botswana annual report 1979: 16 | Appreciated against the US dollar to offset the weakness of the dollar at the time. The new cross rate with South African rand was approximately 1 Botswana pula = 1.056 South African rand. | |
| 2 June 1980
-8 January 1985 |
pegged to rigid basket; 50% South African rand, 50% SDR, with occasional changes to central rate (see Remarks) | Bank of Botswana annual report 1980: 15; 1982: 26; 1984: 10; Bank of Boswana bulletin, December 1985: 16 | RR: De facto crawling band around South African rand. Band width +/-2% starting May 1982. | Switched to a basket as the anchor, at the prevailing cross rate with the US dollar, in light of the continued weakness of the dollar at the time. On 7 November 1980, the pula was revalued 5.3331% against the basket to reduce imported inflation, (Technically, the revaluation occured on the evening of 6 November 1980, after financial markets were closed). On 6 May 1982, the pula was devalued 10% against the basket to offset the pula's recent appreciation against the South African rand. Botswana had difficulties with its balance of payments in 1981-1982. On 7 July 1984, the pula was devalued 5.07% against the basket. The weights in the basket were restructured on 1 August 1983 to restore the South African rand to a 50% weighting; because of the rand's depreciation against the SDR, it had fallen to under 40% of the basket. |
| 9 January 1985
-19 January 1986 |
pegged to rigid basket; 75% South African rand, 25% SDR, with occasional changes to central rate (see Remarks) | Bank of Botswana annual report 1985: 23; Bank of Boswana bulletin, December 1985: 17; IMF ARER (1986: 132-3) | RR: De facto crawling band around South African rand. Band width +/-2%. | At the start of the period, devalued 15% against the old basket and changed the basket weights. Botswana increased the weighting of the South African rand to reflect the predominance of Botswana's economic ties to South Africa. It revalued 3% on 3 August 1985. On 23 August 1985 it devalued 1%, in the first of what was to become a series of minor adjustments designed to avoid sudden major changes. It devalued by 1% on 12 November 1985 and again by 1% on 4 December 1985. |
| 20 January 1986
-2 June 1989 |
pegged to rigid basket; 65% South African rand, 35% SDR, with occasional changes to central rate (see Remarks) | IMF ARER (1987: 118-19; 1988: 114) | RR: Parallel market dataa begin January 1989. Parallel market premium varies from single to low double digits. De facto crawling band around South African rand. Band width +/-2%. | Revalued 1% against the basket and decreased the weight of South African rand in basket to reduce the effect on Botswana of inflation in South Africa. Revalued three times by 1% each time in February 1986; devalued eight times by 1% each time in May-June 1986; revalued twice by 1% each time in September 1986; revalued 1% on 7 January 1987 and 1% on 19 January 1987. |
| 3 June 1989
-26 September 1991 |
pegged to rigid basket; about 60% South African rand, about 40% SDR, with occasional changes to central rate (see Remarks) | Bank of Bostwana annual report 1989: 38; IMF ARER (1990: 60) | RR: Parallel market premium oscillating between single digits and 30%. De facto crawling peg to South African rand. | Revalued 5% against the basket. Apparently the central bank revalued a further 5% in August 1990, but I have not seen daily exchange rates to pinpont the date. |
| 27 September 1991
-1992 |
pegged to rigid basket; about 60% South African rand, about 30% SDR, 10% Zimbabwe dollar | Bank of Bostwana annual report 1991: 37 | RR: Parallel market premium oscillating between single digits and 30%. De facto crawling peg to South African rand. | Devalued 5% against the basket to restore the relative competitiveness of local industry. The Zimbabwe dollar was added to the basket sometime in 1991, possibly at the start of this period (IMF ARER 1992: 60). |
| 1992
-30 May 2005 |
flexible basket | IMF ARER (1993: 68) | RR: Parallel market premium oscillating between single digits and 30% to January 1996 but in single digits for most of the period from February 1995 January 1996-December 1998, when data end. To August 1998, de facto crawling peg to South African rand. From September 1998-December 2001, when data end, a de facto crawling band around South African rand, with a band width of +/-2%. | The basket consisted of the SDR plus the currencies of Botswana's major trading partners, but the central bank did not disclose the weights. IMF ARER (1993: 68) notes the change in the composition of the basket without giving a precise date when it happened. It also says that as of 1999 the basket was simply a composite of the SDR and the South African rand (IMF ARER 2000: 123). External borrowings by parastatal enterprises contracted before 1 October 1990 were protected by the government from movements in exchange rates. Starting with data for 1996, IMF ARER (1997: 113) classifies Botswana as having a dual exchange rate because of the government guarantee, but I classify it as a unitary rate since the guarantee applied to no borrowings after 1 October 1990. The central bank devalued the currency against the basket by 7.5% on 6 February 2004 to reverse appreciation of the real exchange rate (Botswana, Ministry of Finance and Development Planning, "Devaluation of the Pula," press release, 5 February 2004, on Bank of Botswana Web site, viewed 8 |
| 31 May 2005
-present (2005) |
crawling peg to flexible basket | Botswana, Ministry of Finance and Development Planning, "Pula Exchange Rate," press release, 29 May 2004, on Bank of Botswana Web site, viewed 8 December 2005; IMF ARER (2005: 155) | Devalued by 12% against the basket "To start the new system from an exchange rate in line with economic fundamentals." The central bank announced that the exchange rate would be continuously adjusted against the basket on the ases of differences between expected inflation in Botswana versus expected inf lation in countries that were major trading partners. The basket was about 30% SDR and 70% South African rand (IMF ARER 2005: 152). Again, the IMF classifies the exchange rate as a dual rate for reasons described in the previous period, whereas classify the exchange rate as unitary. As of 2005, the scheme giving rise to what the IMF considers to be the dual rate is scheduled to be phased out by 2006 (IMF ARER 2005: 152). |