## On the Pattern of Currency Blocs in Africa

_IMF Working Papers, March 1, 2005_

## Source details

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

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### 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.

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## 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)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp0545.pdf.md){rel="alternate" type="text/markdown"}
  - [Dynamic Currency Bloc Formation Based on the Moves of Existing Regional Groups (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp0545.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/on-the-pattern-of-currency-blocs-in-africa-17958_