Forum Africain de la Finance
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What is the best way to provide monetary arrangements for Africa, and what are the optimum currency areas in the continent? The question is particularly relevant at the moment as Africa considers a continent-wide currency system, while the Euro – the major example of a monetary union for African politicians to observe – undergoes stresses and strains arising from the incomplete way it was constructed.
What can be learnt from previous monetary unions, whether in Africa (East African Shilling, for example) or elsewhere? Why do the Central African Franc zones in Francophone West Africa work, and why is no similar arrangement likely between the English-speaking states of that region? Why does the Rand Monetary Area work and why is Botswana not a member of it? Should the smaller countries and economies of Africa be trying to maintain an independent currency and what welfare is gained and/or given up as they do so? These are all live issues where opinion formers should be contributing to the political dialogue in Africa, but where there is a need to have a sound understanding of the issues to do so.
The advantages of a monetary union are well known. A monetary union can promote trade, and can encourage regional competition both within and between members of the union. It reduces costs associated with currency conversion and exchange rate uncertainty. It creates a larger and therefore potentially deeper and more resilient banking sector for the common currency, and it offers economies of scale in central banking and opportunities to optimise monetary policy.