The Monetary Geography of Africa

Chapter 9. A Single Currency for Africa?

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. The project is intimately associated with the newly formed AU, whose constitutive act (which was signed by twenty-seven governments at the OAU/ AEC assembly of heads of state and government in Lomé, Togo, on July 11, 2000, and which entered into force on May 26, 2001) has superseded the OAU Charter and the AEC Treaty, which were the legal instruments underlying the OAU. The 1991 Abuja Treaty establishing the AEC (which became effective in May 1994 after the required number of signatures) outlines six stages for achieving an integrated economic and monetary zone for Africa that were set to be completed by approximately 2028. The strategy for African integration is based on progressive integration of the activities of the RECs, which are regarded as building blocks for Africa. These are:1 —Stage 1. Strengthening existing RECs and creating new ones where needed (expected to take five years); 147 A Single Currency for Africa? 9 1. See South Africa Department of Foreign Affairs, “African Economic Community,” May 28, 2001, www.dfa.gov.za/for-relations/multilateral/aec.htm. 2284-09_CH09.qxd 11/10/04 2:05 PM Page 147 148 a single currency for africa? —Stage 2. Stabilization of tariff and other barriers to regional trade and the strengthening of sectoral integration, particularly in the fields of trade, agriculture , finance, transport and communications, industry, and energy, as well as the coordination and harmonization of the activities of the RECs (expected to take eight years); —Stage 3. Establishment of a free trade area and customs union at the level of each REC (expected to take ten years); —Stage 4. Coordination and harmonization of tariff and nontariff systems among RECs, with a view to establishing a continental customs union (expected to take two years); —Stage 5. Establishment of an African common market and the adoption of common policies (expected to take four years); and —Stage 6. Integration of all sectors, establishment of an African central bank and a single African currency, setting up an African economic and monetary union, and creating and electing the first pan-African parliament (expected to take five years). The proposed creation of the African common currency is left to the final stage, which was intended to occur during the period 2023–28. However, the September 1999 Sirte (Libya) Declaration proposing the establishment of the AU called for shorter implementation periods and the speedy establishment of the institutions provided for in the Abuja Treaty, in particular, the African financial institutions. Article 19 of the Constitutive Act of the AU calls for the creation of the African Central Bank, African Monetary Fund, and African Investment Bank, with each of these institution’s responsibilities to be defined in subsequent protocols. While the time horizon for replacing national currencies by an African currency is still distant,2 it seems that procedures for countries to bid to host the central bank are soon to be announced. Several countries, including Ghana and Botswana, have already expressed interest in hosting the central bank. The existing RECs, which are viewed as building blocks for the AU, are AMU, COMESA, ECCAS, ECOWAS, and SADC (see figure 9-1 for a list of their members and geographical locations). Thus the creation of a single African currency relies on plans for creating regional monetary unions. These unions would be an intermediate stage, leading ultimately to the merger into a single African central bank and currency. It is unlikely, however, that all of the countries in the regional groupings would find it in their interests to form a 2. The Association of African Central Bank Governors at its August 2003 meeting in Kampala , Uganda, declared that the governors would work for a single currency and common central bank by 2021 (Agence France Presse, August 20, 2003). 2284-09_CH09.qxd 11/10/04 2:05 PM Page 148 a single currency for africa? 149 AMU COMESA ECCAS ECOWAS SADC None AMU Algeria, Libya, Mauritania, Morocco, Tunisia COMESA Angola, Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe ECCAS Burundi, Cameroon, Central African Republic, Chad...