Single currency for Southern Africa?
The same currency will be traded from Kinshasa to Kimberley, if the vision of the Southern African Development Community (SADC) is realised.
The SADC hopes to create a free trade area by 2008, a customs union by 2010, a common market by 2015 and an economic and monetary union by 2018. As envisaged, the monetary union would resemble the European Union, in which several European countries use the same currency, the Euro, under the watch of a single centralised bank.
Economic integration is viewed as part of a wider effort to achieve political integration and closer ties on the continent.
At present several Southern African countries make up a common monetary area, which consists of South Africa, Lesotho, Swaziland and Namibia.
South African Reserve Bank Governor Tito Mboweni has suggested that the common monetary area could form the basis of a monetary union for all of the SADC.
Mboweni also said currencies would have to converge around the South African rand and the Botswana pula.
The SADC countries would have to meet economic targets before a mone- tary union could be formed, such as reining in inflation to single-digit figures by 2008 and to 5% or less by 2012, he said.
The budget deficit would have to be at least 5% or lower than the gross domestic product by 2008 and 3% or less by 2012.
Mboweni explained that this was necessary to force governments to strengthen revenue collection and become less dependent on borrowing from the central bank.
If countries could not meet these targets, they would not be able to join the monetary union, he said.
However, some analysts have argued that the Southern African region is not sufficiently integrated to form a monetary union.
In a recent article, University of KwaZulu-Natal academics Kopano Mataseng and Nicola Viegi debate whether a common currency is necessary for economic integration in Africa. Their argument stems from theories that an optimal currency area is necessary before Southern African countries can create a monetary union.
The criteria for an optimal currency area are the extent of trade between potential members, the similarity of economic structures, the degree of factor mobility and the existence of a system of fiscal transfers between the countries.
Although the authors find that Southern Africa is not an optimal currency area in terms of these criteria, they still maintain that there may be room for dynamic gains from a common currency.
The european experience
Eleven European states quit their national currencies for a single currency, the euro, with the advent of the New Year in 1999, writes Haydee Bangerezako. Today more than 300-million people trade using the euro across the eurozone—in Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, Greece, The Netherlands, Austria, Portugal, Finland and Slovenia.
The introduction of the euro was a milestone in the efforts of European countries to integrate their economies over the past half century. Their first stab at market integration was in 1951 when they signed the Treaty of Paris and established the European Coal and Steel Community, a forerunner to the European Union (EU) which included France, Germany, Italy, The Netherlands, Belgium and Luxembourg. With the 1957 Treaty of Rome these countries formed the European Economic Community. This structure now includes the 25 members of the EU.
At a summit in The Hague in 1969, European heads of state discussed forming a monetary union, but it was another 20 years before they agreed on a plan to realise their vision.
The Werner Report of 1989 set out a three-stage plan that outlined steps towards forming a monetary union within 10 years by fixing currency conversion rates and creating single currency and monetary policies.
European states set out con-vergence policies in the treaty of Maastricht in 1992 to which EU member states would have to comply to join the proposed monetary union. This treaty introduced the term the “European Union”. The treaty introduced policies on inflation rates, public finances, exchange rate stability and long-term interest rates. The criteria for joining the eurozone in the treaty are used today to decide which countries can adopt the euro as their currency.
In 1993 Frankfurt was chosen as the seat of the European Monetary Institute, which later became the European Central Bank. Its role is to strengthen cooperation between the national central banks. It also facilitates the coordination of monetary policies to ensure price stability across countries.
Proponents of the euro say it stimulates investment by eliminating exchange rate fluctuation, thereby reducing uncertainties for importers and exporters. A single currency also eliminates transaction costs that come with exchanging different currencies.