On the Pattern of Currency Blocs in Africa, Issues 2005-2045
This paper seeks to elucidate the debate over currency union in Africa. The paper examines whether empirical investigation points to the gradual emergence of currency blocs. Based on the historical data on inflation, trade, and the comovements of prices and outputs, I argue that the emergence of large-scale currency blocs in Africa will follow a gradual path and that this dynamic does not lead to the emergence of a single continental currency at this time. Rather, the pattern which emerges seems to suggest three blocs: one in West Africa, a second around South Africa, and a third in Central Africa. Although little evidence is found supporting the emergence of a single African currency at this time, the emergence of an African currency union is not necessarily precluded, since the ultimate decision to surrender a nation's monetary policy to a supranational institution is not made based solely on economic considerations. I then address the issue of a possible anchor for the union, were it to emerge and opt for an anchorage. I find- based on the trade criterion-that the euro seems to be a good choice.
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A Potential Anchor
2d Country Moves from Common Monetary Area CMA
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African CFA zone African countries African Union Alesina Algeria Angola Average Trade-to-GDP Ratio Benin bloc configuration Botswana Burkina Faso Burundi CAEMU Cameroon Cape Verde Central African CFA Central African Rep CFA franc Chad CMA Average Trade-to-GDP Comoros Comoros Kenya Comovement Following Trade comovements of outputs comovements of prices Congo Cote d'lvoire Country Moves currency bloc formation currency union Djibouti dTvoire early joiners Economic and Monetary ECOWAS and Mauritania Egypt emerge Equatorial Guinea euro exchange rate existing regional groups Following Trade Dynamic Gabon Gambia Ghana Guinea-Bissau High Price Comovement High Trade-Ratio Countries intra-African trade Kenya Lesotho Liberia Madagascar Malawi Mali member countries Monetary Union Morocco Mozambique Namibia Niger Nigeria outputs and prices percent prices and outputs Principe rand zone Ratio with CMA relative price Rwanda SADC Senegal Sierra Leone single continental currency Somalia South Africa Sudan Table 2c Tanzania Tenreyro Togo trade network externalities Tunisia Uganda WAEMU West African CFA Zimbabwe