Researchers raise questions over benefits of single African currency

With African countries having set a 2021 deadline for the introduction of a single currency, questions are being raised about who is likely to benefit most. A recent paper by Trade Law Association researchers Johan Fourie and María Santana-Gallego points out that the benefits are likely to be greater for a select few. The gains in terms of trade will depend on how open the country is and the intensity of trade flows with the other members of the currency union, say Fourie and Santana- Gallego. Creating a currency union may result in large trade gains – an increase in trade by a factor of up to three according to some research – but this is based on the belief that lower transaction costs would lead to large increases in intra-regional trade volumes, augmenting growth. “The central idea is that a common currency implies more than an elimination of exchange rate volatility among its members. It also reduces transaction costs, information asymmetries and uncertainty, increases transparency relevant to international trade and provides a commitment device for macroeconomic policies.” While many African countries stand to benefit significantly from a shared currency, there appears to be evidence that two of the five regional groupings within Africa – Comesa and SADC – would realise substantial gains, and these gains would be greater for a small number of countries within these groups. “This supports a selective approach to adopting a currency union, rather than the (politically untenable) objectives of the linear approach,” according to Fourie and Santana-Gallego.