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New Monetary Unions in Africa: a Major Change in the Monetary Landscape?

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  • Paul R. Masson

Abstract

Africa has important initiatives to build regional currency areas and ultimately a single African currency. Calculations using a calibrated model show that the proposed monetary unions are unlikely to yield net economic benefits for all countries, suggesting that all-inclusive monetary unions are not incentive-compatible—even if trade doubles as a result of sharing a currency. Central banks are assumed not to be immune from pressures to finance governments. While a monetary union will to some extent dilute the influence of individual governments, countries that exhibit fiscal discipline would not want to join a monetary union with others that do not. Given the heterogeneity across countries, monetary unions could be selectively expanded but not encompass all countries in a region.

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Bibliographic Info

Article provided by CEPII research center in its journal Economie Internationale.

Volume (Year): (2006)
Issue (Month): 107 ()
Pages: 87-105

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Handle: RePEc:cii:cepiei:2006-3td

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Related research

Keywords: Currency unions; african trade; fiscal discipline; monetary block; models;

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Cited by:
  1. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, vol. 32(C), pages 463-482.

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