Should Africa work toward a single currency? Can the European Union be a model for African nations? The goal of a common African currency has long been a pillar of African unity, a symbol of the strength that its backers hope will emerge from efforts to integrate the continent. A common currency could increase economic stability, provide greater insulation for central banks from pressures to provide monetary financing, and lower transactions costs. But there are many pitfalls along the road to achieving those goals. In The Monetary Geography of Africa, Paul Masson and Catherine Pattillo analyze the current situation and prospects for further integration.
Since the beginning of decolonization some fifty years ago, African nations have suffered setbacks preventing them from enjoying the benefits of economic development. With time, the continent's leaders have increasingly recognized the need to change inward-looking and state-dominated economic policies. Now a stronger consensus favors regional cooperation and outward-looking and efficient policies, as well as a move to make leaders accountable for their shortcomings. In July 2002 a summit of African leaders took a major step by heralding a new and invigorated African Union (replacing the Organization of African Unity), together with a comprehensive plan to bring about economic and political integration.
Another sign of this new consensus has been the formulation of regional integration initiatives across the continent, including those geared to monetary unions, or groupings of countries sharing a common currency and central bank. But obstacles to implementation may prevent some from going forward fully or, if they do, prevent them from producing gains of economic welfare. Difficulties include asymmetries among countries especially in their terms of trade and fiscal discipline. Lack of fiscal discipline could ruin plans to create a regional central bank that would lead to a stable currency and low inflation.
The authors maintain that the goal of creating a single African currency is not feasible or desirable, but that existing monetary unions, such as the CFA franc zone in western and central Africa, offer a base on which to build. More important for the continent's well-being is to attack the more fundamental problems of corruption and governance.