Advanced

One Africa, One Currency-A Study of the Prospects for a Monetary Union in Africa

Boklund, Karthika (2009)
Department of Economics
Abstract
In 1991 the African Union established a plan for creating a monetary union for the whole continent. The plan, the Abuja Treaty, aim to unify the continent, creating stability and improving economic welfare. Several regional economic communities (RECs) are the foundation of this plan which means that the progress is primary dependent on their successful development. This essay studies Africa’s progress towards a monetary union. The findings are that the RECs have made progress in areas such as infrastructure, energy and communication, but that the overall progress is slow. This is first and foremost due to the economic conditions in the countries, but depends also on the lack of will to join a currency union. The theoretical considerations... (More)
In 1991 the African Union established a plan for creating a monetary union for the whole continent. The plan, the Abuja Treaty, aim to unify the continent, creating stability and improving economic welfare. Several regional economic communities (RECs) are the foundation of this plan which means that the progress is primary dependent on their successful development. This essay studies Africa’s progress towards a monetary union. The findings are that the RECs have made progress in areas such as infrastructure, energy and communication, but that the overall progress is slow. This is first and foremost due to the economic conditions in the countries, but depends also on the lack of will to join a currency union. The theoretical considerations used to assess the creation of a monetary union are the cost and benefit analysis and the theory of Optimum Currency Areas, (OCA). On this basis, the answer to the question of how well the RECs are integrated is in this study highly dependent on the approach chosen, as is dictated by the cost and benefit. When investigating the intra-regional trade the results show a low level of intra-regional trade indicating that pure economic benefits can turn out to be relatively low, in comparison to the adjustment cost. In attempting to ascertain wage flexibility and labor mobility the information has been scare, resulting in insufficient empirical evidence and thereby any general conclusions unfeasible. Altogether it was established that the RECs are considerably behind time schedule and therefore it is appropriate to question how suitable the plan is for the African economies. The prospects for a feasible and stable monetary union in Africa in 2023-2028 are currently rather modest. (Less)
Please use this url to cite or link to this publication:
@misc{1644330,
  abstract     = {In 1991 the African Union established a plan for creating a monetary union for the whole continent. The plan, the Abuja Treaty, aim to unify the continent, creating stability and improving economic welfare. Several regional economic communities (RECs) are the foundation of this plan which means that the progress is primary dependent on their successful development. This essay studies Africa’s progress towards a monetary union. The findings are that the RECs have made progress in areas such as infrastructure, energy and communication, but that the overall progress is slow. This is first and foremost due to the economic conditions in the countries, but depends also on the lack of will to join a currency union. The theoretical considerations used to assess the creation of a monetary union are the cost and benefit analysis and the theory of Optimum Currency Areas, (OCA). On this basis, the answer to the question of how well the RECs are integrated is in this study highly dependent on the approach chosen, as is dictated by the cost and benefit. When investigating the intra-regional trade the results show a low level of intra-regional trade indicating that pure economic benefits can turn out to be relatively low, in comparison to the adjustment cost. In attempting to ascertain wage flexibility and labor mobility the information has been scare, resulting in insufficient empirical evidence and thereby any general conclusions unfeasible. Altogether it was established that the RECs are considerably behind time schedule and therefore it is appropriate to question how suitable the plan is for the African economies. The prospects for a feasible and stable monetary union in Africa in 2023-2028 are currently rather modest.},
  author       = {Boklund, Karthika},
  keyword      = {Africa,Monetary Union,Costs and Benefits,OCA-theory,Intra-regional trade,Economics, econometrics, economic theory, economic systems, economic policy,Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik},
  language     = {eng},
  note         = {Student Paper},
  title        = {One Africa, One Currency-A Study of the Prospects for a Monetary Union in Africa},
  year         = {2009},
}