Political sketch
Independent from Portugal 5 July 1975.
Portuguese ships first visited the then uninhabited Cape Verde islands in 1456. Portuguese settlement began in 1462; the population became a mixture of Portugese and African. The colony became a station for the African slave trade and for trade with India. Prosperity ended after Portugal abolished slavery in 1869. Two droughts costing thousands of lives occurred in the early 1900s. In 1951 Cape Verde became an overseas province of Portugal rather than a colony. In 1961 its citizens obtained full Portuguese citizenship. Even so, there was a strong independence movement, led by the African Party for the Independence of Guinea-Bissau and Cape Verde (Portugese initials PAIGC). (Guinea-Bissau, on the African mainland, was another former Portuguese colony granted provincial status but seeking full independence.) Portugese forces withdrew from Cape Verde and other colonies in 1975, following a coup of democratically minded leftist military personnel against the Portuguese dictatorship in April 1974. Cape Verde became an independent on 5 July 1975. In 1981, following a coup in Guinea-Bissau, Cape Verde abandoned hope of a union with Guinea-Bissau. Cape Verde held its first multiparty elections in 1991.
Wars since 1500
None, though there were attacks by pirates in 1592 and by the French in 1712.
Convertibility
Portuguese colonies:
Portugal introduced exchange controls on 24 September 1914 and revoked them on 18 October 1937. There were also a few controls from perhaps 1939 to 1947. Controls were intensified in the summer of 1947, made extensive on 9 February 1948, and removed on 1 January 1993, long after Portugal had ceased to have any colonies except the Chinese city of Macau.
The escudo, introduced in Portugal in 1911 and in its African colonies in 1914, was a chronically weak currency until the currency reform of 1928. The Banco Nacional Ultramarino, Portugal's private monopoly note-issuer for its colonies, was not required to keep its colonial currencies at par with the Portuguese escudo, though its revised charter of 31 November 1901 did require it to accept notes of one branch at any other branch at a discount of no more than 2%, except regarding Mozambique. (The bank did not issue notes in Portugal.) In 1948 the separate colonial foreign-currency funds were centralized in Lisbon. The currency reform of 1953 unified the Portuguese escudo and the currencies of the Portuguese colonies, making them a true currency area similar to the sterling area or the French franc zone (Portugal, law of 27 June 1953). A Monetary Fund of the Escudo Zone was established by Portugal, Decree-Law 44/703 of 17 November 1962 (reprinted in Banco de Portugal annual report 1962: 129-40). On 21 February 1963 Portugal issued a ministerial decree liberalizing capital m ovements in the escudo zone (IMF ARER 1963: 313). On 1 March 1963 measures were taken to organize a new payments system for the zone (IMF ARER 1964: 390). However, Angola and Mozambique were persistently in deficit to the fund. The result was that high-priority payments were settled immediately at 1 overseas escudo = 1 Portuguese escudo, while low-priority payments experienced delays, which were a form of rationing, until the funds were available to settle them at the official rate. Exchange controls on private transfers from overseas territories to Portugal were imposed by Portugal, Decree-Law 478/71 of 6 November 1971 (reprinted in Banco de Portugal annual report 1971, v. 2: 55-67).
Cape Verde:
Decree-Law No. 25/98 and 26/98 of 29 June 1998 removed all restrictions on current account and capital transactions alike (IMF 1999: 27-8).
Other
Defaults on or restructurings of debt to the private sector (mainly from Purcell and Kaufman 1993 and Standard & Poor's 2004): 1981-1996 (foreign currency bank debt).
Banking crises (data since 1970s mainly from Caprio and Klingebiel 1999 and Frydl 1999): Nonperforming loans reached 30% 1995, during crisis of 1993-1994.
No exchange rate data in Reinhart and Rogoff (2003).
References
Primary sources:
--Laws and decrees:
Cape Verde. Gazette. 1842-present. Boletim official do Governo Geral de Cabo Verde (1841-1860); Boletim official do Governo Geral da Provincia de Cabo Verde (1861-1897); Boletim official do Governo da Provincia de Cabo Verde (1897-1929); Boletim oficial do Governo da Colónia de Cabo Verde (1930-1951); Boletim oficial de Cabo Verde (1951-1975); Boletim oficial (1975-present). Boa Vista (1841-1860); Praia (1861-present): publisher unknown to me (1841); Imprensa Nacional (1842-1860); Imprensa Nacional de Cabo Verde (1861-present).
Portugal. Gazette. 1715-present. Diário do governo (1715-1974); Diário da república (1974-present). Lisbon. Recent issues are online at <http://dre.pt/>.
--Publications of monetary authorities:
Banco de Cabo Verde. Annual report. 1998?-present. Relatório do Conselho de Administracão. Praia: Banco de Cabo Verde. (The first online is 1998; I have not seen older issues in hard copy, if they exist.)
Banco de Cabo Verde. Bulletin. 2000?-present. Boletim económico. Praia: Banco de Cabo Verde. (The first online is 2000; I have not seen older issues in hard copy, if they exist.)
Banco Nacional Ultramarino. Annual report. 1865-1999. Relatório do Banco Nacional Ultramarino. Lisbon: Banco Nacional Ultramarino. In English as Annual Report, 1973-1999? Lisbon: Banco Nacional Ultramarino. From 1920-1960 a separate volume appeared, entitled Relatório do Governo do Banco, parecer do Conselho Fiscal, balanço e contas referentes ao exercício de ....
--Web site of the current monetary authority (viewed 7 April 2005):
<http://www.bcv.cv>, especially the file "História do Banco de Cabo Verde."
--Other publications or Web sites:
None.
Main secondary sources:
Banco Nacional Ultramarino. Serviço de Documentação, Arquivo e Biblioteca. 1977. Papel-moeda para Moçambique, 1877/1973. Lisbon: Banco Nacional Ultramarino, Serviço de Documentação, Arquivo e Biblioteca. (Reproduces the bank's charter.)
Braga Paixão, Vítor Manuel. 1964. Cem anos do Banco Nacional Ultramarino na vida portuguesa, 4 v. Lisbon: Banco Nacional Ultramarino.
Clarence-Smith, [W.] Gervase. 1985. The Third Portuguese Empire, 1825-1975: A Study in Imperialism. Manchester: Manchester University Press.
Estêvão, João. 1991. Moeda e sistema monetário colonial. Lisbon: Escher. (Concerns Portuguese colonies, especially Cape Verde.)
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.)
IMF. 1999. "Cape Verde: Recent Economic Developments" Staff Country Report No. 99/58, July. At <http://www.imf.org>.
Olters, Jan-Peter. 1999. "Foreign Exchange Queues, Informal Traders, and a Zero Premium in the Black Market: A Cape Verdean Puzzle." International Monetary Fund Working Paper No. 99/110, August. At <http://www.imf.org>.
World Currency Yearbook. 1984-1990/93. Brooklyn, New York: International Currency Analysis. Previously called Pick's Currency Yearbook (1955-1979) and Pick's World Currency Report (1980-84). New York: Pick Publishing Corporation.
Monetary authorities: Cape Verde
| Dates | Type | Name | Source | Remarks |
| October 1865
-12 September 1974 |
private monopoly issue (as part of a currency union from 1953) | Banco Nacional Ultramarino (headquarters Lisbon, Portugal) | Portugal, law of 16 May 1864 chartering Banco Nacional Ultramarino, reprinted in Banco Nacional Ultramarino (1977: 20-2); Ministry of Marine and Overseas, portaria (decree) of 4 October 1865 to government of Cape Verde, cited in Banco de Cabo Verde Web site, viewed 7 April 2005 | The Banco Nacional Ultramarino received permission to operate in Portuguese colonies (except, initially, Macau and East Timor). The bank had separately marked note issues for each colony. It opened a branch in Praia in October 1865, the first bank in Cape Verde. The second bank was the Banco Colonial Português (headquarters Lisbon, Portugal), in Praia, by 1924. It went into liquidation in 1925 or 1926 (Clarence-Smith 1985: 128). The second durable bank seems to have been the Banco Totta e Açores (headquarters Lisbon, Portugal), in Praia, in 1995, although a post office savings bank (the Caixa Económica Postal) had been created in 1928. The first coins for Cape Verde were issued in 1930. |
| 13 September 1974
-28 September 1975 |
de facto central bank (with commercial banking functions) | Banco Nacional Ultramarino (headquarters Lisbon, Portugal) | Portugal, Decree-Law 451/74, 13 September 1974 | The Portuguese government nationalized Portuguese-owned banks in Portugal and its colonies after coup by democratic-minded left-wing military officers in Lisbon on 25 April 1974. |
| 29 September 1975
-1 September 1993 |
monobank | Banco de Cabo Verde (headquarters Praia, Cape Verde) | Cape Verde, Law 25/75, 29 September 1975; Lei Orgânica do Banco de Cabo Verde, Decision with Force of Law No. 13/76, 26 June 1976, cited in Banco de Cabo Verde Web site, viewed 7 April 2005 | The banking system, previously nationalized by the Portuguese, came under local control. Cape Verde adopted a centrally planned economy. The Banco de Cabo Verde began full-fledged operations on 1 July 1976, when it received the assets and liabilities of the Banco Nacional Ultramarino and the Banco de Fomento Nacional em Cabo Verde Cape Verde. Notes of the Banco de Cabo Verde notes replaced those of the Banco Nacional Ultramarino on 1 July 1977. The central bank also took over issuance of coins, previously the responsibility of the government treasury. Cape Verde joined the IMF on 20 November 1978. |
| 2 September 1993
-present (2005) |
central bank | Banco de Cabo Verde (headquarters Praia, Cape Verde) | Cape Verde, Lei Orgânica do Banco de Cabo Verde, 1990; revised Lei Orgânica do Banco de Cabo Verde, August 1993, cited in Banco de Cabo Verde Web site, viewed 7 April 2005 | The commercial banking functions of the Banco de Cabo Verde were spun off into the government-owned Banco Comercial do Atlântico (headquarters Praia, Cape Verde), in Praia. Moreover, the post office savings bank became a commercial bank, the Caixa Económica de Cabo Verde (headquarters Praia, Cape Verde). It was the second competing bank but only had about 15% of deposits. |
Exchange rate arrangements: Cape Verde
| Dates | Official arrangement | Source | Unofficial arrangement, if different | Remarks |
| 1462
-October 1865 |
fixed; used Portuguese and other currencies | starting date inferred from general histories; no specific information on monetary history | Portuguese colonization began in 1462. "Real" is the Portuguese word for "royal." The milreis (which means "1,000 reals") and conto (1 million reals) were widely used units of account, especially toward the end of this period. In Portugal, the milreis became the main unit of account by Portugal, edict of 24 April 1835. Portugal and Portuguese colonies using its units of account became decimalized. | |
| October 1865
-31 December 1913 |
pegged; 1 local real = 1 Portuguese real | Portugal, decree of 19 October 1853 | The decree of 1853 established the same ratings for coins in Cape Verde as in Portugal. The Banco Nacional Ultramarino had a separately marked note issue for Cape Verde when it opened in 1865. Its opening changed the exchange rate from fixed to pegged. Foreign coins were stripped of their legal tender quality by Portugal, decree of 1 July 1886 plus Cape Verde, decree of apparently later in 1886. | |
| 1 January 1914
-28 February 1977 |
pegged; 1 local escudo = 1 Portuguese escudo | Portugal, decree of 22 May 1911; decree of 28 October 1911; Decree No. 141, 18 September 1913 | Portugal changed the name of its currency to the escudo on 22 May 1911; 1 escudo = 1,000 reals (in Portuguese, reis), or 1 milreis. Accounting in the new unit did not actually begin overseas until 1 January 1914. The change of the currency's name from real (meaning royal) to escudo (meaning shield) reflected the revolution that overthrew Portugal's monarchy in 1910. The conto, formerly 1 million reals, now became 1,000 escudos. | |
| 1 March 1977
-30 June 1977 |
local escudo, repressed (flexible basket) | Banco de Cabo Verde Web site, viewed 7 April 2005 | Unlinked from the Portuguese escudo, which was suffering depreciation, and linked to an unspecified basket. Cape Verde never registered a gold parity with the IMF, since it became a member several months after IMF members had by agreement abandoned the system of gold parities. | |
| 1 July 1977
-1 September 1993 |
Cape Verde escudo, repressed (flexible basket) | Banco de Cabo Verde Web site, viewed 7 April 2005 | Various issues of World Currency Yearbook show parallel market premiums of over 50% in 1984, the first year available, peaking at over 90% in 1988, then falling to mid double digits until data cease in 1993. | An issue of local notes by the central bank made changeover to a new national currency complete. The basket had 18 currencies and was weighted, though the IMF does not specify by what criteria (IMF ARER 1979: 91). |
| 2 September 1993
-12 March 1998 |
Cape Verde escudo, flexible basket | consequence of Cape Verde, revised Lei Orgânica do Banco de Cabo Verde, August 1993, cited in Banco de Cabo Verde Web site, viewed 7 April 2005 | From 1996 onward there were queues for foreign exchange in the official market, but the black-market premium in the first six months of 1998 was generally well below 4% (Olters 1999: 7). | The monobank system ceased and a market in foreign currency was allowed to develop. |
| 13 March 1998
-29 March 1998 |
pegged; 0.50 Cape Verde escudo = 1 Portuguese escudo | Cape Verde and Portugal, Acordo de Cooperação Cambial, 13 March 1998, cited in IMF ARER (1999: 179) | There were queues for foreign exchange in the official market, but the black-market premium in the first six months of 1998 was generaly well below 4% (Olters 1999: 7). | Repegged to the Portuguese escudo in the context of an economic cooperation agreement with Portugal, which apparently however did not become operational until July 1998. |
| 30 March 1998
-31 December 1998 |
pegged; 0.55 Cape Verde escudo = 1 Portuguese escudo | Cape Verde and Portugal, Acordo de Cooperação Cambial, 13 March 1998, cited in IMF (ARER 1999: 179) | There were queues for foreign exchange in the official market, but the black-market premium in the first six months of 1998 was generaly well below 4% (Olters 1999: 7). | Devalued. Olters (1999: 7) offers a different account. He says the switch from a basket to the Portuguese escudo was announced at the end of March 1998 but became effective on 5 July 1998, and that when the switch was announced, the Cape Verde escudo was simultaneously devalued 6% against the basket. On 5 July 1998, though, the central bank maintained the preannounced exchange rate of 0.55 Cape Verde escudo = 1 Portuguese escudo. |
| 1 January 1999
-present (2005) |
pegged; 110.27 Cape Verde escudos = 1 European euro | IMF ARER (2000: 183, 187) | Queues in the official foreign-exchange market apparently diminished toward zero at the beginning of this period. | Switched to the European euro as the anchor currency at prevailing cross rate with the Portuguese escudo when the European euro replaced the Portuguese escudo. |