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.