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The Monetary Geography of Africa

Paul R. Masson and Catherine Pattillo

Publication Year: 2005

Africa is working toward the goal of creating a common currency that would serve as a symbol of African unity. The advantages of a common currency include lower transaction costs, increased stability, and greater insulation of central banks from pressures to provide monetary financing. Disadvantages relate to asymmetries among countries, especially in their terms of trade and in the degree of fiscal discipline. More disciplined countries will not want to form a union with countries whose excessive spending puts upward pressure on the central bank's monetary expansion. In T he Monetary Geography of Africa, Paul Masson and Catherine Pattillo review the history of monetary arrangements on the continent and analyze the current situation and prospects for further integration. They apply lessons from both experience and theory that lead to a number of conclusions. To begin with, West Africa faces a major problem because Nigeria has both asymmetric terms of trade —it is a large oil exporter while its potential partners are oil importers —and most important, large fiscal imbalances. Secondly, a monetary union among all eastern or southern African countries seems infeasible at this stage, since a number of countries suffer from the effects of civil conflicts and drought and are far from achieving the macroeconomic stability of South Africa. Lastly, the plan by Kenya, Tanzania, and Uganda to create a common currency seems to be generally compatible with other initiatives that could contribute to greater regional solidarity. However, economic gains would likely favor Kenya, which, unlike the other two countries, has substantial exports to its neighbors, and this may constrain the political will needed to proceed. A more promising strategy for monetary integration would be to build on existing monetary unions —the CFA franc zone in western and central Africa and the Common Monetary Area in southern Africa. Masson and Pattillo argue that the goal of a creating a single African currency is probably beyond reach. Economic realities suggest that grand new projects for African monetary unions are unlikely to be successful. More important for Africa's economic well-being will be to attack the more fundamental problems of corruption and governance.

Published by: Brookings Institution Press

Title Page

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pp. vii-viii

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pp. ix-xi

What has taken the place of the cold war as the defining division in world politics? One answer is the chasm between, on the one hand, those who feel that they are benefiting from globalization and, on the other, those who feel left behind. Today the split is, very roughly, 50-50; ...

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pp. xiii-xiv

This book describes the present use of currencies in Africa as well as their use in the recent past and attempts to draw conclusions concerning the evolution of exchange rate regimes in the future. Before getting into the substance, two questions need to be answered: what is the meaning of monetary geography, ...

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pp. xv-xvi

We would like to thank a great number of our colleagues at the IMF and World Bank, UN Economic Commission for Africa, WAMI, other official institutions, and in academe. Our collaboration began when Christian François, then in the IMF’s African Department, suggested that we analyze the proposed ...

Abbreviations and Acronyms

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pp. xvii-xix

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Chapter 1. Monetary Union in Africa: Past, Present, and Future

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pp. 1-11

Africa finds itself at an important juncture in its history as the twenty-first century gets under way. There is widespread consensus that Africans must take responsibility for their destiny. Nearly fifty years have passed since the beginning of decolonization and early hopes of rapid development have faded. ...

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Chapter 2. African Currency Regimes since World War II

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pp. 12-32

Providing historical context for the current constellation of currency areas throws light on the potential success of initiatives toward greater monetary integration. Indeed the proposals to create monetary unions encompassing the countries of ECOWAS in West Africa and of EAC and of COMESA in East and southern Africa, ...

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Chapter 3. Criteria for Currency Unions or the Adoption of Another Currency

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pp. 33-44

Currency regimes, in particular the adoption of a common currency in the context of regional integration, have been in the spotlight for more than four decades. In recent years, a more intense interest in developing-country monetary unions, especially in Africa, can be attributed to the EU’s successful launch of the euro zone. ...

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Chapter 4. African Monetary Integration in Practice: CFA Franc Zone and South African CMA

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pp. 45-76

The prospects for monetary integration in Africa are best analyzed by first studying the two existing monetary or formal exchange rate unions on the continent. These are the CFA franc zone (or, to be more precise, the two regions composing it, namely, WAEMU and CAEMC)1 and the CMA based on South Africa’s rand. ...

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Chapter 5. Experiences of Countries in Managing Independent Currencies

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pp. 77-94

What are the individual country experiences with independent currency regimes? We focus in this chapter on those sub-Saharan African nations that are not currently members of a monetary union (either the CFA franc or CMA zone), covering the period from the 1970s to the beginning of the current decade. ...

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Chapter 6. Proposed Single Currency for West Africa

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pp. 95-112

On April 20, 2000, in Accra, Ghana, the leaders of six West African countries declared their intention to proceed, by January 2003, to a monetary union to be known as WAMZ.1 This would be a first step toward a wider monetary union in 2004, which would include all ECOWAS countries. ...

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Chapter 7. Regional Integration in SADC

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pp. 113-128

SADC, a grouping of countries in southern Africa, emerged from the Southern African Development Coordination Conference (SADCC). In existence from 1980 until 1992, SADCC excluded South Africa and aimed to contain the apartheid regime and minimize its unfavorable effects on neighboring countries. ...

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Chapter 8. EAC and COMESA

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pp. 129-146

Overlapping membership of countries in a number of regional organizations complicates plans for monetary integration in East Africa and southern Africa. There is a project under way to revive economic cooperation in a small, three-country group, the EAC, but two of these countries are also members of a much larger, ...

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Chapter 9. A Single Currency for Africa?

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pp. 147-161

The creation of a common African currency has long been a pillar of African unity, a symbol of the strength that its backers hope will emerge from efforts to integrate the continent. A common currency was an objective of the OAU, created in 1963, and the AEC, established in 1991. ...

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Chapter 10. Africa's Monetary Georgraphy in the Coming Decades

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pp. 162-170

In the more than forty years since independence, Africa’s monetary geography has been transformed. In part this is due to changes to the international environment, which make keeping fixed exchange rates against an external anchor more difficult for African nations (though the CFA franc is still rigidly fixed against the euro). ...

Appendix A. Calibration of the Model

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pp. 171-181

Appendix B. Country Vignettes

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pp. 182-196


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pp. 197-206


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pp. 207-217

E-ISBN-13: 9780815797531
E-ISBN-10: 0815797532

Page Count: 217
Publication Year: 2005