Africa’s New Monetary Unions
With the current state of the global economy, the Eurozone crisis, and the large numbers of countries that have left similar unions in the past, a new currency union would not seem like an appealing idea to most regions of the world. However, six West African countries, including Ghana, Guinea, and Nigeria, have all decided to adopt the eco as a common currency by 2015. Members of Africa's current currency union, the West African Economic and Monetary Union (UEMOA), have also decided to adopt the eco by 2020. Similarly, five countries of the East African Community (EAC)—Kenya, Tanzania, Uganda, Rwanda, and Burundi—have all signed an agreement on forming their own monetary union in a decade. There are several potential advantages to these proposed unions, however these could also lead to several big problems for Africa. #
There are several reasons for establishing these unions. One of these is the success of the UEMOA, which currently holds the West African CFA franc as its common currency. Members of the UEMOA, which include Niger, Mali, and Senegal, have been known for having fiscally disciplined governments, an extremely stable currency, and the most intra-region trade in Africa. The legislation on expanding the union has been passed with the intention of bringing these benefits, especially in trade, to most of West Africa. In the EAC nations, the proposed monetary union, called the Monetary Union Protocol, comes after several unions already established between these countries, including the Customs Union and the Common Market. The EAC nations all plan on establishing a central bank and a statistics office to control the currency. The goal of this union is to expand local business trade, attract more foreign investment to the region, and to stray away from aid. The area has recently become ripe for investment, with Uganda and Kenya discovering more oil and Tanzania using its large natural gas reserves to its advantage.
Despite the seeming positive effects of these proposals, formation of the unions may be difficult to attain. Establishing the unions would involve converging the economies of the nations involved. This will be very difficult considering the measures which need to be taken, including passing a free trade policy, and the economic diversity, which includes large variations in business patterns, GDP size, and economic growth. Equalizing the exchange and interest rates among all the countries would adversely affect their economic growth and their financial stability. The eco may also come under speculative attack; if a region such as the Eurozone could struggle with a common currency, then the lesser-developed African nations could easily as well.
The questions at this point for West and East African nations include not only if the advantages will outweigh the negatives in establishing their proposed unions, but also if these nations will be able to work together and connect their economies. Thus, the common currency goal still looks like it is a long ways off. Do you think the proposed monetary unions are a good idea for West and East Africa?