Frequently Asked Questions

How is the Bank of Namibia different from commercial banks?

The Bank of Namibia is Namibia's central bank. It is the only institution entitled by law to issue Namibia Dollar notes and coins, which are distributed to the public through the commercial banks.

While the commercial banks are privately-owned, the Bank of Namibia is fully-owned by the Government of the Republic of Namibia and is responsible for certain functions. These include supervision of banking institutions operating in the country in order to ensure efficient and sound banking system in the interest of depositors and the economy as a whole. The Bank of Namibia facilitates the clearing of cheques drawn by the commercial banks customers and the settlement of transactions between banks, lends money to commercial banks against a security when a commercial bank needs liquidity support and grants licenses for new banks. It also provides advice on monetary and fiscal policies to the Government.

Can members of the public hold an account with the Bank of Namibia?

Members of the public cannot hold an account with the Bank of Namibia because the Bank does not provide banking services directly to the public. It only provides banking services to the commercial banks and the Government and manages accounts for them.

What is the Common Monetary Area?

The Common Monetary Area (CMA) is a monetary union consisting of Namibia, South Africa, Lesotho and Swaziland. Free movement of capital is allowed within the area, and a common exchange control regime is maintained with the rest of the world. The currencies of Namibia, Lesotho and Swaziland are pegged to the South African Rand on a one-to-one basis.

Why does the Bank of Namibia change its Bank rate when the South African Reserve Bank changes its repo rate?

Whenever the South African Reserve Bank changes its repo rate, the Bank of Namibia changes its Bank rate to ensure that interest rates in Namibia are consistent with those prevailing in other CMA countries. If Namibia's interest rates are substantially different from that of South Africa and other CMA countries, this could lead to large capital outflows or inflows and may destabilize the Namibian economy.

What is the difference between the Bank rate and the repo rate?

Both are basically the same. The Bank rate is the rate at which commercial banks, which are temporarily short of cash, can borrow from the Bank of Namibia. The repo rate enables holders of Securities, principally commercial banks, to acquire funds from the South African Reserve Bank by selling the securities and at the same time agreeing to repurchase them at a later date at a predetermined price.
Changes in the Bank rate and the repo rate signal the interest rate policy direction that the Bank of Namibia and the South African Reserve Bank would like to adopt at any point in time. Increases in these rates indicate a desire for a contraction in credit while decreases reflect a relaxation of interest rate policy.

Why is the South African Rand legal tender in Namibia but the Namibia Dollar not legal tender in South Africa?

The main reason is that the Rand was in circulation in Namibia as the sole legal tender before the introduction of the Namibia Dollar. After the introduction of the Dollar, the two governments agreed to keep the Rand legal tender in Namibia until such time that the Namibian authorities decide to terminate it.

Why do we have to pay a commission/fee when converting the Namibia Dollar into Rand in South Africa?

The Namibia Dollar is not legal tender in South Africa. Therefore, you cannot use it to pay for goods and services in South Africa. The fee that is charged is merely a transaction cost for the service the commercial banks or authorised dealers provide in converting the Namibia Dollar into Rand. When travelling to South Africa, members of the public in Namibian are advised to convert Namibia Dollar into Rand before leaving the country, thereby avoiding service charges.

What is monetary policy?

Monetary policy is the exercise of the central bank's control over the quantity of money and interest rates to promote the objective of national economic policy. Using tools of monetary policy, the central bank can affect the volume of money and credit.

A monetary policy aims to achieve maximum economic performance over time. A growing support has emerged endorsing the concept of price stability as the principal objective of monetary policy in order to create an environment conducive to sustainable output and employment.

Should Namibians be concerned about the depreciation of the Rand?

A depreciating currency could have both positive and negative effects on the economy. On the negative side, a depreciating currency results in high import prices. High import prices leads to increases in domestic prices and inflation. On the positive side, a depreciating currency makes domestically produced goods more competitive on the export market and could increase the demand for these goods. This may result in export industries employing extra labour.

What is inflation and why should we worry about it?

Inflation is the general increase in prices of goods and services in an economy. The Central Bureau of Statistics collects information on prices of a wide variety of goods and services every month and uses the data to calculate price changes for these sets of goods and services. There are various indexes that measure different aspects of inflation, but the most commonly known index is the Consumer Price Index (CPI), which is used to measure inflation for purchases by private households. Currently the CPI calculation is based on data from the Windhoek area.

Inflation is a worrying phenomenon because it reduces the purchasing power of an individual's disposable income and thus lowers the standard of living. This problem is particularly pronounced for those on fixed income, for example, pensioners, because their income does not keep up with the rise in inflation.

What is the difference between Government Bond and Treasury Bills?

Both are credit instruments or Securities and are used to the Government to finance its budget deficit. The different is that Government Bonds are long-term (1 year and above) debt instruments while the Treasury Bills are short-term (les than one year) debt instruments. Also, Bonds are issued in the name of each holder, while Treasury Bills are bearer documents, such as bank notes or cheques. Both Securities may be traded.

What is fiscal policy?

Fiscal policy is one of the tools that a government uses to influence the domestic economy. A fiscal policy refers to the expenditures a government undertakes to provide goods an services and to the way in which it finances these expenditures.

There are two methods of financing government expenditures: taxation and borrowing. Taxation include personal and corporate income tax, value-added tax (VAT) and royalties or taxes on specific sets of goods. Governments can also finance expenditure through borrowing from various sources domestic or foreign. Governments can borrow from foreign governments and multilateral agencies such as the World Bank, the International Monetary Fund and the African Development Bank, as well as the from the foreign private sector.

What is a budget deficit?

The budget deficit is the amount by which the government expenditure exceeds its revenue in a particular year. A budget deficit has certain consequences for the economy. When the government is running a budget deficit, it enters the financial market to borrow funds to finance the deficit. This may drive up interest rates, which in turn may discourage private investment expenditures and therefore retard economic growth.

What is gross domestic product?

Gross domestic product, or GDP, is the total market value of all final goods and services produced annually within a country. GDP measures production within national borders regardless of whether the factors of production are locally or foreign-owned.

What is an interest rate?

Interest rate is the price of money; it is the rate paid to lenders by borrowers in return for the use of money, normally expressed as a percentage of the amount borrowed per year. The level of interest rate plays an important role in an economy, and for that reason interest rates are often used by the central bank as a policy tool to manipulate the economy in the interest of promoting growth and controlling inflation. For example, if demand for goods and services in the economy is depressed, the central bank may lower interest rates to stimulate the demand for credit and hence the demand for goods and services. Conversely, excessive demand can be reduced by the increase in interest rates.

What is disposable income?

This is the amount of income left to an individual after income tax and social security contributions have been paid. Disposable income is a key determinant of how much money households can spend on consumer goods and services.

What is reserve requirement?

It is the percentage of banks' total liabilities to the public (deposits), which they are legally required to keep in reserves at the Bank of Namibia. This serves as a guard against unsound credit policies that could make it impossible for institutions to honour their obligations, but may also be used as a monetary policy tool.

The reserve requirement is one of the powerful policy tools for influencing commercial banks' ability to extend loans. Lowering the reserve requirement increases the banks' ability to make more loans, thus tending to expand the money stock and to lower short- term interest rates. Raising the reserve requirement restricts the banks' ability to make more loans available to borrowers, thus tending to shrink the money stock and to raise short-term interest rates.