On the Pattern of Currency Blocs in Africa

IMF Working Papers, March 1, 2005

Source details

Canonical URL

On the Pattern of Currency Blocs in Africa

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Etienne B Yehoue
• Published: March 1, 2005
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451860641.001

Summary and purpose

• This paper seeks to elucidate the debate over currency union in Africa.
• It examines whether empirical investigation points to the gradual emergence of currency blocs.
• Based on historical data on inflation, trade, and the comovements of prices and outputs, the author argues that the emergence of large-scale currency blocs in Africa will follow a gradual path and does not lead to the emergence of a single continental currency at this time.
• The paper addresses the issue of a possible anchor for a potential union and finds—based on the trade criterion—that the euro seems to be a good choice.

Empirical basis and methods

• Historical data examined include inflation, trade, and comovements of prices and outputs.
• The analysis is empirical in nature, aiming to detect patterns consistent with bloc formation rather than normative prescriptions.

Key findings

• The pattern of comovements and trade suggests the emergence of three regional currency blocs:
  • One in West Africa.
  • A second around South Africa.
  • A third in Central Africa.
• Little evidence supports 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.
• Based on the trade criterion, the euro appears to be a suitable anchor should a union opt for anchorage.

Policy implications and considerations

• Currency union in Africa, if it emerges, is expected to follow a gradual path rather than immediate continent-wide unification.
• Economic criteria alone may not determine decisions to join a supranational monetary arrangement; political and non-economic considerations remain important.
• Choice of an external anchor (the euro, per the trade criterion) is a policy-relevant consideration for any prospective union.

Content in this bundle

• Dynamic Currency Bloc Formation Based on the Moves of Existing Regional Groups
  • Dynamic Currency Bloc Formation Based on the Moves of Existing Regional Groups (Markdown version)
  • Dynamic Currency Bloc Formation Based on the Moves of Existing Regional Groups (PDF)