Answer to Question #223486 in Macroeconomics for DR FRANKLIN

Question

Nigeria and South Africa are the two largest economies in Africa. Examine how these two economies have dealt with the international monetary trilemma in the last one year.

Answer 1

Nigeria and South Africa are open economies and they have been facing trilemma trade off such that policy makers have been able to simultaneously achieve only two policies among the following: free capital flows, an independent monetary policy and exchange rate stability.

In the last one year, these economies have been undergoing post financial sanctions and both of them have began attracting capital inflows and to a much less extent, started decreasing their restrictions on capital outflows.

According to the concept of international monetary trilemma, the two countries have chosen a floating exchange rate, in this case allowing free capital inflows and monetary policy independence to come into place.