How far is Africa from a single currency?

By John Oyuke

The goal of a single African currency has long been seen as a pillar of African unity, a symbol of integration and a precursor to an area in which the free movement of goods, persons, services and capital is ensured.

However, experts are cautioning that while it is okay to dream big, there is need to be wary of potential failure if implemented too hastily and the harm it would cause, not only for Africa’s global image but also the people.

According to African economists, though the interest in a common currency has been fuelled by the euro’s success story, it must be remembered the euro came a long way.

European countries co-operated closely for more than 60 years before they launched their single currency.

The theme of the inaugural Congress of African Economics was Towards the creation of a single African currency: Review of the creation of single African currency, which optimal approach to be adopted to accelerate the creation of the unique continental currency?

Recommendations will be submitted to the Conference of African Ministers of Economy and Finance for consideration and adoption, before they are submitted to the Assembly of Heads of State and Government for consideration and adoption for implementation.

Ndubuisi Ekekwe of John Hopkins University, USA, told the meeting the continent should first focus on strengthening the regional economic communities (Recs) before aiming higher for the single African currency.

Labour mobility

Strengthening of Recs, he added, would expand the levels of intra-trade in the blocs, enhance labour mobility and harmonise wage and price leading to emergence of a common regional currency under regional central banks.

"These regional currencies will eventually converge to a single African currency to be managed by a continent-wide supranational central bank," said Ekekwe.

He argued that for the single currency to succeed, the regional communities must each develop a strong monetary union in their respective regions.

This, he pointed out, is very important as Africa does not have the infrastructure capabilities to cement a single monetary at the continental level without first developing the regional monetary unions.

"Each regional community must work to establish a strong regional market with zero tariffs and non-tariffs and non-tariff barriers, a common market, including free movement of labour and capital and a single currency and central bank," he said in a paper presented at the meeting.

The five existing regional economic communities (Recs) are the Arab Monetary Union, the Common Market for Eastern and Southern Africa, Economic Community of Central African States, Economic Community of West African States and Southern African Development Community. It is envisaged that a single African currency would help reduce the cost of doing business on the continent and promote business across borders.

Under a unification currency, regional states could also benefit by pooling resources and enjoying the economies of scale and better market access negotiated under better terms.

Coordinated budgetary rules in the union would also ensure that excessive budget deficits are reduced in member states as that could undermine the region’s exchange rate stability. Economists, however, caution that despite the benefits of regional integration and a potential single currency in Africa, there are many challenges, which must be overcome by AU given existing political and economic weaknesses.

Political impediments

Jonathan Addison told the meeting that while the monetary union is a laudable goal for Africa, there are a number of prerequisites.

He said the major impediment is likely to be political, rather than economic as granting any powers to an external body necessarily means a reduction in national sovereignty, which some countries might be uncomfortable with.

Addison added in moving forward in this direction there are also significant cultural or political and even religious differences, giving an example of countries of North Africa, which are vastly different to those of sub-Sahara.

"These must not be ignored but need not stop the progress to a single currency," he said in a paper entitled " Monetary Union in Africa: A benefit for Economic Independence?"

He said care must also be taken to ensure that economically poorer nations are not disadvantaged. Ekekwe said under the proposed arrangements, economically stronger states would have to carry the weaker ones since monetary and fiscal decisions would affect all the member states.

"Implementing such plans at the continental level without first trying their effects at the regional level would be catastrophic," he said.

He said unlike in Europe where many of the economies are stable, Africa has serious economic challenges, which could make managing varying economic gaps difficult.

Commissioner for Economic Affairs, African Union Maxwell Mkwezalamba said the current global financial crisis demands that Africa put in place sound and prudent macroeconomic policies.

"The creation of a single African currency is one way to this," he told the congress.

Dr Mkwezalamba said African Union would continue to pursue various ongoing initiatives with a view to accelerating the continental integration process, adding that Economists and researchers have a key role to play in this process.