Why Monetary Union is Good for Africa

Published on 24th November 2008

Assorted Currencies from Africa
A monetary system for the making of free Africa requires a substantially different approach from the process of monetary integration within the EU. Unlike the European monetary approach to create an optimal currency area, an African monetary system is key to forging Africa’s emancipation. An African currency union will reverse the history of Africa’s grand oppression into an autobiography of liberation. It is thus a qualitatively different system differing in purpose, functioning, objective and intention from the pattern of monetary union of Europe where the issue is to unify fairly well functioning currencies in order to exploit the advantage of an enlarged market.

 

Africa’s currency union is part of the overall struggle to mobilise finance internally in the effort to inter-connect states, peoples, communities, regions, economies, households, families, individuals and markets across Africa. It will build and open Africa as a dynamic, prosperous and independent national economic and social system. Once Africa has an integrated economic and political system, it would create the necessary condition to forge a real partnership with all types of economies and regions of the world.

 

Factors to Consider

 

A unified African currency must be made stable so that those engaged in transaction can benefit without inflation and/or deflationary pressures. Acts of discrimination and restrictions on legitimate or lawful transactions in all markets must be forbidden. The trade system within Africa must be open, free and fair. Leading members of the AU community must guarantee and underwrite the smooth and stable functioning of an African currency. These members can be selected from the regions based on consensus and consent. The transition from the state-based currency system to the African monetary system must be based on lawful, non-dislocation and evolutionary strategy. In addition, it must be voluntary and based on persuasion, consent and the pursuit of common objectives. The transition requires that states be willing and committed to co-ordinate monetary, interest and budgetary policies amongst themselves with an understanding that currency integration adds to their sovereignty rather than subtract it.


The dollar has an overall overarching influence in the continent today. In some countries, it is freely used as a means of exchange. If there is no unified currency union, Africa will be a battleground between the Euro and the dollar. The Yen may not be as influential as the Euro and the dollar in Africa, but it is in the wings. These three currencies will compete in Africa and the AU must prepare the ground to found a currency union to protect Africa’s developmental aspirations.

 

An African monetary union is one important way of moving closer to making the Pan-African vision a reality. The necessary conditions for making moves towards a Pan-African monetary union are:


-The smooth transition of power from France and EU to integrate the CFA frank zone to the African Union without breaking up the common monetary area. In addition, to upgrade, adjust and persuade the states in the Rand monetary area and other bilateral and multilateral efforts such as the East African common market to join the all-African monetary system

 

-A new liquidity creating mechanism backed by Africa’s mineral resources and African Union confidence building measures to support an African currency to circulate freely in the member states.

 

-A determined effort to re-link with the IMF, countries like France or the European Union on their clear acceptance of Africa’s national developmental priorities and not Africa’s continued indebtedness to them by preventing them to take a leading role in designing an all-African currency union


-To negotiate the par value amongst the Euro, the dollar and the African currency for the purposes of managing Africa’s foreign trade in the service of African development with the rest of the world


-To control the authority of adjustment of the African currency to the dollar and Euro in the AU


-To create and manage a dual currency system where like the Chinese Yuan, the African currency is inconvertible by becoming a unit of account and means of payment for stimulating inter-African trade and investment. There should be a build up of foreign reserves backed by mineral wealth and the growth of Africa's labour productivities from which a foreign transaction account can be kept for the purposes of trading outside Africa.

 

The key importance of a currency union and an inconvertible African currency is to make it possible to raise domestic financing by enlarging the domestic market and stimulating a comprehensive and an integrated development of the continent. Africa’s monetary union is not conceived to join together existing currencies but to overcome the weaknesses of the admittedly weak and fragmented existing currencies. It falls within the strategy in bringing about change where Africans are able to exchange their private labours in order to consume the products of their own creations rather than the numerous luxury products their elite's consume coming from outside by manipulating foreign exchange. The monetary arrangement can be designed in such a way that Africans consume the products they produce, and discourage them from consuming luxury items for the few who own foreign dollars and Euros.

 

By Mammo Muchie

Professor at Aalborg University and member of the Network of Ethiopian Scholars (NES)





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