Sao Tome and Principe’s currency pegged to euro since 1 January

4 January 2010

Sao Tome, Sao Tome and Principe, 4 Jan – Sao Tome and Principe is since 1 January the second Portuguese-speaking African country to have its currency pegged to the euro, a step which should make investment more attractive, though there may be adjustment problems.

The choice between pegging the dobra to the euro, dollar or CFA franc was still under discussion in May 2008 when five economists defended the European currency option in an IMF study, on the grounds that the island country’s major commercial partners, among them Portugal, Spain and France, were located in the Euro Zone.

Rising prices of imported essential goods such as fuel and rice for the population as the dobra weakened against international currencies had led planners to consider future options for the currency.
The study’s authors warned that the success of monetary change depends on enhanced transparency, fiscal discipline and careful debt management, and on structural reforms that facilitate private investment and increase job flexibility.

Cape Verde, which like Sao Tome and Principe is a small and open island economy, pegged its escudo to the euro in 1999, with Portugal’s support.

The decision to peg the dobra to the euro results from an Economic Cooperation Agreement between Portugal and Sao Tome and Principe signed in the latter’s capital last 28 July, after more than a year of contacts between the finance ministers and central banks.
Portugal placed a 25 million euro credit line at the island country’s disposal per the terms of that agreement. (macauhub)