One Africa, One Money?
“Is one Africa, one money possible?” asked Victor Murinde, Director of the African Development Institute at the African Development Bank (AfDB). This was the question on the minds of delegates attending the “Convergence and Monetary Unions” session on Day One of the 2013 African Economic Conference (AEC) on “Regional Integration in Africa”. A secondary question, which related to the theme of the conference, was: How will monetary unions boost regional integration across Africa?
Regional economic unions already exist to promote convergence, namely the gradual reduction of disparities of economic indicators between African countries that would adopt a common currency.
“There needs to be a high degree of fiscal discipline in African countries and strong political discipline, if they want to move towards one monetary currency,” said economist Bamba Ka, a PhD student at the University of Dakar, Senegal. He presented a paper on the degree of convergence of macroeconomic shocks in the Economic Community of West African States (ECOWAS).
“Are countries ready for monetary union?” asked Ka. “The Ministers of Finance in these countries need to provide us with the answers; however, the results show that they are not ready for integration.” Total convergence, he concluded, is difficult to attain.
The second speaker, Emmanuel Dele Balogun, a lecturer at the University of Lagos, Nigeria, presented a paper titled “Can WAMZ [West Africa Monetary Zone] Area Inflation Converge without Ex-Ante Monetary Policy Coordination?” It examined the determinants of inflation differentials from the set convergence criteria in the West African Monetary Zone (WAMZ) that was established in 2000. The paper highlighted the need for countries to pursue ex ante independent monetary policies that narrow inflation differentials and sustain the inflation convergence target of less than 10 per cent, to minimize signatories’ costs upon monetary unification. However, inflation among WAMZ member states varies from five per cent to 20 per cent, which means that most countries did not reach the inflation convergence target. And a divergence in policy pursuits means that a common currency for WAMZ countries is not realizable in the near future, according to Balogun.
The globalization of the economy and regional economic blocs decrease the relevance of physical national borders, said William Gbohoui, a PhD candidate at the University of Montreal, Canada, who presented a paper titled: “Economic Integration in WAEMU: Will the Multilateral Monitoring Mechanism Lead to Growth and Welfare Convergence?” It analyzed the implications of the Convergence, Stability, Growth and Solidarity Pact adopted by West African Economic and Monetary Union (WAEMU) Governments, which aims to stabilize the economic situation and macroeconomic policies to ensure the harmonious development of member states.
While trade liberalization has a positive effect on the speed of convergence, the convergence horizon has been postponed on several occasions, due to the inability of some countries to meet economic community standards. It was postponed from December 2002 to December 2005 and later to December 2008. Now it stands at the end of this year.
While low-income countries grow faster to catch up with rich countries, Gbohoui’s policy recommendation was that convergence criteria need to be redefined, so as to assist poorer countries to reach their targets.