Is Africa’s plan for a single currency feasible?
By Zion Rufus
When we talk about boosting trade across the African continent, and the significant benefits it holds for member states, there is a universal agreement that unification of currency could be a key transformational element.
In August 2003, the Association of African Central Bank Governors announced that it would work for a single currency and common central bank by 2021.
According to the African Union, this integration offers a broader opportunity for African producers, traders, and consumers within a globalising world, which favours larger trading blocs to compete effectively for inward investment and foreign trade.
In June 2021, the heads of state of the Economic Community of West African States (ECOWAS) agreed to a new road map to launch the single currency in 2027.
Meanwhile, it’s out of fact to say the move won’t be faced with severe challenges as mixed reactions trail the proposition.
Where the AU posits that assuredly, a bigger African market under one currency could stimulate more foreign direct investments (FDI) in Africa, improve regional productivity through competition, help diversify production and exports, lower transaction costs and stable exchange rate for AU member states, improve financial efficiency, reduce transaction time, save money, and make goods and services pricing more transparent, it added that given existing political and economic weaknesses in the continent and varying levels of development, a single currency will not just solve all of Africa’s problems.
In a LinkedIn submission, Oliver McStill, a change enthusiast and banker shared that in its simplest form, a bloc currency is an act of eliminating the middleman.
In his argument, McStill pointed out that the assumption that any form of heterogeneity will negatively impact the success of a bloc currency could not be further from the truth.
He said: “Non-heterogeneous economies have little to gain from trading with each other, therefore the lack of it is a sound argument for the trade a bloc currency will foster among subscribing countries.”
Ikechukwu C. Okafor, ACIB shared that even in the medium term, a currency union cannot work in Africa.
“…So the AU should not bother emulating the EU, for it is not just a ‘copy-and-paste’ exercise. The EU is a powerful economic zone. Member states ceded some authority to the regional body. Our AU is a weakling, only existing on paper. Again, there are minimum entry requirements to join the EU known as the ‘Convergence Criteria’. Just being situated in Europe is not one of them. Economists have warned against a single currency for the African Union anytime soon, but characteristic of politicians, they wish for it but lack the capacity to do the groundwork. Let us face more pressing issues, please.”
On his part, Caxton Fantami pointed: African countries are too many and too miniscule to have a strong currency. As for Pan-African Currency regime, that is a different ball game. Africa having a centralised currency and backed by a pool of our resources will be a game changer. The AfCFTA, if successful, will be a good prelude to an Africa with a stronger base. 1.4 Billion people trading with each other is a mammoth number as compared to 20 Million Ghanaians.”
Regardless of evident challenges, the African Union expects that with the realisation of a singular currency, costs associated with currency conversions, which in many cases are hedged to the US dollar, will be eliminated within the continent.
Additionally, this will also promote intra- community trade, make business-decision making simpler by removing the constraints of currency conversion and exchange rate volatility, and stimulate cross-border trade and investments with improved cost-efficient payments and clearing systems in the banking sectors.
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