This paper investigates the causes and consequences of colonial Africa’s first financial crash, which happened in South Africa’s Dutch Cape Colony. The 1788–1793 crisis followed a common sequence of events: trade and fiscal deficits were monetized by printing money, credit extension accelerated, the exchange rate fell sharply and inflation spiked. The domestic conditions were compounded by a deterioration of international conditions and political uncertainty. The final straw was the collapse of the Cape’s own Lehman Brothers – an unregulated merchant house, run by a prominent Cape family, which had been indiscriminately issuing the equivalent of promissory notes. The policy response during the crisis included fiscal austerity, an attempted reorganization of domestic financial intermediation and continued monetary easing, which depreciated the exchange rate and triggered inflation. A new domestic bank was created. Yet the Cape economy would not recover quickly; the effects of the Cape’s first financial crash would be felt deep into the nineteenth century.
The Cape of Perfect Storms: Colonial Africa’s first financial crash, 1788-1793
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