A Single Currency for Africa: Challenges and Possibilities

The chapter presents a historical and economic perspective of the proposed African single currency. It discusses the motivations for creating a monetary union and a single currency in Africa and evaluates its progress. Africa has drawn much inspiration from the European single currency experience that accounts for much of the progress in economic and monetary integration among members of the Eurozone. The Euro has proven to be an efficient means of conducting business transactions by participating countries, and the success is in part attributed to the high degree of convergence and homogeneity of the participating economies. However, African economies are diverse compared to European economies and need a different path to achieve monetary integration. A single currency in Africa will boost trade and economic cooperation among African Union members, thus stimulating growth and development. The chapter thus evaluates the benefits and costs of a monetary union and single currency and discusses the prospects for adopting a common currency in Africa. The African Union strategy towards economic and monetary integration emphasizes on strengthening existing regional economic communities and creating new ones that will eventually merge into an African Economic Community, an African Central Bank, and a single currency. The proposed African monetary integration will have extensive political and economic implications. Not all African countries will satisfy the stringent convergence requirements before the launching, but progressively, countries will get their macroeconomic policies and institutions up to the standards required to participate in the union successfully.