tom alweendo : the exchange rate speech by mr tom alweendo, governor of the bank of namibia, during a breakfast meeting of the namibia economic society, windhoek, 17 august 2004. * * * i have been asked to talk to you this morning about ‘ the exchange rate ’ and against my better judgment i agreed to do so. specifically, the question everyone is asking is whether it is not high time that the monetary authorities do something to depreciate the exchange rate through monetary policy operations. at the center of the argument for action to depreciate the exchange rate is the negative effect a high exchange rate has on the export sectors of the real sectors. at the risk of stating the obvious, let ’ s all establish and agreement that an exchange rate is a price of one currency in terms of another currency. therefore, like other prices, exchange rates are determined by the interaction of supply and demand. this interaction will sometimes results into a depreciation or appreciation of a currency. intervening in this process is in itself an interference with the free market concept, where the market is supposed to be efficient, guided by an invisible hand. i am, however, happy that there are now a number of market players who understand that the market is not always perfect and that there is sometimes a justifiable need to intervene in order to correct the market. in order for us to appreciate the exchange rate today, let us look at the movement in the exchange rate over the last fourteen years. in 1990, the average nad / us $ exchange rate was nad2. 59 and the average inflation was about 15 %. by 2000 the exchange rate has depreciated by more than 100 % to nad6. 87. in 2002 the exchange rate reached a record low of nad10. 52. during 2003 the exchange rate started to appreciate and most people were not expecting an appreciation, but were expecting depreciation. because of this mismatch in expectation and what transpired, the effect of the appreciating exchange rate is made to sound much worse than it really is. those who argue that the monetary authority should do something to depreciate the currency, suggest two methods. firstly they say that the central bank should reduce interest rate and secondly the central bank could buy us $. with the first method, the local currency will become less attractive and there will be less funds flowing into the local economy and hopefully this will translate into a weaker exchange rate. this

practice. the code shall set out the banking industry ’ s key commitments and obligations to customers on standards of practice, disclosure and principles of conduct in relation to banking services. director of ceremonies, in terms of the best practices, the code shall provide that contract between the commercial banks and customers shall have a clear, plain and simple terms, for the understanding of which no special knowledge is required. a very good example to draw from is when president obama signed the new credit card bill of rights into law, he challenged the industry to create a simple, easy to understand credit card agreement that you “ don ’ t need a law degree or a magnifying glass to understand. ” this means eliminating provisions and confusing terminology used by lawyers for reasons of tradition or habit, replaces the legalistic with plain - language, and introduces information design to enhance readability and comprehension. it is thus the intention of the bank that contracts should be simple, short, and preferable designed to fit on one or two pages. the other key aspect of this code will be to enforce good lending practices by banks to avoid over - indebtedness. banks will, therefore, be expected to act in the best interest of its customers by ensuring that they know and understand the customer ’ s needs, only offer them products and services that are suitable to such needs, and provide them with information to enable them to make informed choices. the code will further require banks to have in place effective complaints handling procedures and appropriate timelines within which complaints should be dealt with. this also means that banks will be directed to be the first “ port - of - call ” to offer redress for customers, by having dedicated complaints desks to handle customer grievances. at this juncture i wish to inform you that the bank of namibia, together with the industry, will issue the said draft code of good banking practice, during the course of this year for public comments. therefore, director of ceremonies, i humbly request the audience present in this room to spend time and do justice to all consumer protection initiatives, which we bis central bankers ’ speeches all agree are close to our hearts by providing extensive comments to the bank on the draft consultative paper. director of ceremonies, ladies and gentlemen, the other initiative being pursued by both the bank of namibia and our sister regulator, the namibia financial institutions supervisory authority, is the establishment of financial services ombuds office, in terms of the draft financial institutions and markets bill. this office will be financed and