Lesotho is a member of the Common Monetary Area. The 1974 agreement, which was revised in 1986, provided access to the South African capital market for the Lesotho banking system. Lesotho is responsible for its own monetary policy and controls its own financial institutions, but management of the rand currency and the gold and foreign exchange reserves of the rand area remains the sole responsibility of South Africa. In 1980, the Lesotho Monetary Authority (now the Central Bank of Lesotho) began issuing loti as the national currency, but the South African rand remained legal tender and the loti was pegged at par with the rand.
Demand for credit in the private sector was strong during the 1990s in response to growth in the manufacturing, services and construction sectors. In contrast, claims on central government were reduced as a result of the IMF-supported Structural Adjustment Program; in fact, the government was a net saver with the domestic banking system in 1992. In the 1990s, interest rates remained positive in real terms and generally slightly higher than in South Africa due to higher margins.
The commercial bank sector is dominated by the governmen towned Lesotho Bank and the South African-owned Stambic Bank which acquired Barclays Bank's interest in Lesotho. Lesotho Bank was privatized in 1999. The Lesotho Building Finance Corporation merged with Lesotho Bank in April 1993 to facilitate an increase in the scale of domestic mortgage lending. The Lesotho Agricultural Development Bank (LADB) had served to mobilize rural savings and provide agricultural credit, but it was liquidated in 2000.
The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $150.1 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $231.5 million. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 13%.
No securities exchange was in operation in Lesotho as of 2003.