World | Africa

May 28, 2012

Single Currency in Africa: Mauritius Would Be the Big Loser

While the euro area, and its single currency, is imploding, the International Monetary Fund (IMF), has just the pros and cons of a single currency in Africa.

The objective of a common African currency has long been a mainstay of African Unity, a symbol of strength that its backers hope, emerge from efforts to integrate the continent.

This movement is motivated by the desire to counteract the perceived economic and political weaknesses. For example, regional groupings could help Africa to negotiate trade agreements that are favorable, worldwide, (as part of the World Trade Organization) or bilateral (with the European Union and States USA).

But the IMF noted that "the formation of monetary unions has always been accompanied by intense debates on the costs and benefits to potential members. Even if monetary integration is often an important political dimension, it rarely exceeds the national interest. In fact, when serious tensions arise within the existing monetary unions such as the euro area, existential questions about the potential benefits of monetary sovereignty often resurface. "

The single African currency would be appropriate for monetary policy in South Africa. South Africa, Lesotho, Namibia and Swaziland are already in a common currency area centered on the rand.

But Mauritius is, without doubt, the big loser, if it converged on a single monetary model, based on feedback from the IMF. The latter emphasizes that "if the SADC countries (community development in Southern Africa) are probably better, if they join a single monetary policy, however, Angola, Mauritius and Tanzania would lose this membership, because Angola is subject to significant idiosyncratic disturbances, and Mauritius and Tanzania have strong fiscal policies. "

Moreover, in Africa, budgetary problems are more serious and credibility of monetary institutions is more fragile than in Mauritius. "The strong specialization of African countries also made their terms of trade are subject to substantial shocks, which often are not related to the same products and do not all evolve in the same direction. A country would not join a union with another country facing various external shocks. Or a country would not join a union whose members follow a fiscal policy much less rigorous. "

 

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