1. Introduction

This book addresses major challenges in financial sector policymaking and implementation that are of current relevance to African countries. It begins with a broad focus on financial sector development as a whole, highlighting major areas such as the money market, payment system, and the capital market, as well as issues such as regulatory strategy, capacity building of financial firms and service providers, and financial inclusion. Many of the African countries are struggling with decision-making related to foreign exchange market policies, for reasons including the importance, for their economic development, of the strength and convertibility of their currencies and the soundness of their approach to capital mobility. Most of the countries also prefer stability of their exchange rates. This book argues that African countries should aim for social efficiency of their foreign exchange markets, which would include soundness of their foreign exchange systems, from an economic growth perspective, and fairness from an income distributional perspective. Finally, some of the African countries would like to have financial systems that are strong enough to be international centers of high-standing. The policy implications of that ambition are also discussed in this book. A policy strategy for developing such a financial center will include conceptualizing a financial center as a cluster; finding a niche for entry at the international level, in terms of clientele, products, and appropriate service provisions; enhancing competitiveness by building capacity, structuring incentives, and improving the quality of the national governance environment; and having in place high quality financial services supervision and regulation.