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The Benefits and Costs of Monetary Union in Southern Africa: A Critical Survey of the Literature

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Author Info
George S. Tavlas () (Bank of Greece)

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Abstract

With the 14 members of the Southern African Development Community (SADC) having set the objective of adopting a common currency for the year 2018, an expanding empirical literature has emerged evaluating the benefits and costs of a common-currency area in Southern Africa. This paper reviews that literature, focusing on two categories of studies; (1) those that assume that a country’s characteristics are invariant to the adoption of a common currency; and, (2) those that assume that a monetary union alters an economy’s structure, resulting in trade creation and credibility gains. The literature review suggests that a relative-small group of countries, typically including South Africa, satisfies the criteria necessary for monetary unification. The literature also suggests that, in a monetary union comprised of all SADC countries and a regional central bank that sets monetary policy to reflect the average economic conditions (e.g., fiscal balances) in the region, the potential losses (i.e., higher inflation) from giving up an existing credible national central bank, a relevant consideration for South Africa, could outweigh any potential benefits of trade creation resulting from a common currency.

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Paper provided by Bank of Greece in its series Working Papers with number 70.

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Length: 54 pages
Date of creation: Apr 2008
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Handle: RePEc:bog:wpaper:70

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Related research
Keywords: South African Development Community; monetary union; optimum currency areas;

Other versions of this item:

Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Buiter, Willem H, 2008. "Economic, Political, and Institutional Prerequisites for Monetary Union Among the Members of the Gulf Cooperation Council," CEPR Discussion Papers 6639, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Vaubel, Roland, 1978. "Real exchange-rate changes in the European community : A new approach to the determination of optimum currency areas," Journal of International Economics, Elsevier, vol. 8(2), pages 319-339, May. [Downloadable!] (restricted)
  3. Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 454-481, May. [Downloadable!] (restricted)
    Other versions:
  4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121. [Downloadable!] (restricted)
    Other versions:
  5. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 7-46, 04. [Downloadable!] (restricted)
  6. Marvin Goodfriend, 2007. "How the World Achieved Consensus on Monetary Policy," NBER Working Papers 13580, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Steven K. Buigut & Neven T. Valev, 2006. "Eastern and Southern Africa Monetary Integration: A Structural Vector Autoregression Analysis," Review of Development Economics, Blackwell Publishing, vol. 10(4), pages 586-603, November. [Downloadable!] (restricted)
  8. Francesco Paolo Mongelli, 2002. "'New' views on the optimum currency area theory: what is EMU telling us?," Working Paper Series 138, European Central Bank. [Downloadable!]
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  9. Steven Buigut, 2006. "Monetary Integration Initiatives in Eastern and Southern Africa (ESA): Sorting the Overlapping Membership," International Finance, Blackwell Publishing, vol. 9(3), pages 295-315, December. [Downloadable!] (restricted)
  10. Harris Dellas & George Tavlas, 2005. "Wage Rigidity and Monetary Union," Economic Journal, Royal Economic Society, vol. 115(506), pages 907-927, October. [Downloadable!] (restricted)
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  11. Cobham, David & Robson, Peter, 1994. "Monetary integration in Africa: A deliberately European perspective," World Development, Elsevier, vol. 22(3), pages 285-299, March. [Downloadable!] (restricted)
  12. George Tavlas, 1994. "The theory of monetary integration," Open Economies Review, Springer, vol. 5(2), pages 211-230, March. [Downloadable!] (restricted)
  13. Agnès Bénassy-Quéré & Maylis Coupet, 2005. "On the Adequacy of Monetary Arrangements in Sub-Saharan Africa," The World Economy, Blackwell Publishing, vol. 28(3), pages 349-373, 03. [Downloadable!] (restricted)
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  14. Bayoumi, Tamim & Ostry, Jonathan D, 1997. "Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa: Implications for Optimum Currency Arrangements," Journal of African Economies, Oxford University Press, vol. 6(3), pages 412-44, October.
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  15. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  16. Masson, Paul R & Taylor, Mark P, 1992. "Common Currency Areas and Currency Unions: An Analysis of the Issues," CEPR Discussion Papers 617, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  17. Khamfula, Yohane & Huizinga, Harry, 2004. "The Southern African Development Community: suitable for a monetary union?," Journal of Development Economics, Elsevier, vol. 73(2), pages 699-714, April. [Downloadable!] (restricted)
  18. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  19. P. Swamy & George Tavlas, 2007. "The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation," Economic Theory, Springer, vol. 31(2), pages 293-306, May. [Downloadable!] (restricted)
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  20. Fleming, J Marcus, 1971. "On Exchange Rate Unification," Economic Journal, Royal Economic Society, vol. 81(323), pages 467-88, September. [Downloadable!] (restricted)
  21. Tavlas, G.S., 1991. "On the International Use of Currencies: the Case of the Deutsche Mark," Princeton Studies in International Economics 181, International Economics Section, Departement of Economics Princeton University,.
  22. George Tavlas & Harris Dellas & Alan Stockman, 2008. "The Classification and Perfomance of Alternative Exchange-Rate Systems," Working Papers 90, Bank of Greece. [Downloadable!]
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  23. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
  24. Hondroyiannis, George & Swamy, P.A.V.B. & Tavlas, George S., 2009. "The New Keynesian Phillips Curve In A Time-Varying Coefficient Environment: Some European Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 13(02), pages 149-166, April. [Downloadable!]
  25. Paul R. Masson, 2008. "Currency Unions in Africa: Is the Trade Effect Substantial Enough to Justify their Formation?," The World Economy, Blackwell Publishing, vol. 31(4), pages 533-547, 04. [Downloadable!] (restricted)
  26. Georgios Karras, 2007. "Is Africa an Optimum Currency Area? A Comparison of Macroeconomic Costs and Benefits," Journal of African Economies, Oxford University Press, vol. 16(2), pages 234-258, March.
  27. Jeffrey M. Lacker & John A. Weinberg, 2007. "Inflation and unemployment: a layperson's guide to the Phillips curve," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 201-227. [Downloadable!]
  28. George S. Tavlas, 2003. "The Economics of Exchange-Rate Regimes: A Review Essay," The World Economy, Blackwell Publishing, vol. 26(8), pages 1215-1246, 08. [Downloadable!] (restricted)
  29. Eduard Hochreiter & George Tavlas, 2006. "Regional and international currency arrangements: introduction," International Economics and Economic Policy, Springer, vol. 3(3), pages 175-179, December. [Downloadable!] (restricted)
  30. Stockman, Alan C., 1999. "Choosing an exchange-rate system," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1483-1498, October. [Downloadable!] (restricted)
  31. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sophia Lazaretou, 2008. "Banking and Central Banking in Pre-WWII Grecce: Money and Currency Developments," Working Papers 86, Bank of Greece. [Downloadable!]
  2. Milan Sojic & Ljiljana Djurdjevic, 2008. "Monetary Policy Objectives and Istruments used by the Privileged National Bank of the Kingdom of Serbia (1884 - 1914)," Working Papers 87, Bank of Greece. [Downloadable!]
  3. Apostolides, Alexander, 2008. "“How Similar to South-Eastern Europe were the Islands of Cyprus and Malta in terms of Agricultural Output and Credit? Evidence during the Interwar Period”," MPRA Paper 9968, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Zarko Lazarevic, 2008. "Banking Performance in South-Eastern Europe During the Interwar Period," Working Papers 79, Bank of Greece. [Downloadable!]
  5. Cruz Rodriguez, Alexis, 2009. "Choosing and assessing exchange rate regimes: A survey of the literature," MPRA Paper 16314, University Library of Munich, Germany. [Downloadable!]
  6. Yuksel Gormez, 2008. "Banking in Turkey: History and Evolution," Working Papers 83, Bank of Greece. [Downloadable!]
  7. Stephan Barisitz, 2008. "Banking Transformation (1989 - 2006) in Central and Eastern Europe - With Special Reference to Balkans," Working Papers 78, Bank of Greece. [Downloadable!]
  8. Roumen Avramov & Dragana Gnjatovic, 2008. "Stabilization Policies in Bulgaria and Yugoslavia During Communism's Terminal Years : 1980s Economic Visions in Retrospect," Working Papers 81, Bank of Greece. [Downloadable!]
  9. Peter Bernholz, 2008. "Government Bankruptcy of Balkan Nations and their Consequences for Money and Inflation before 1914: A Comparative Analysis," Working Papers 74, Bank of Greece. [Downloadable!]
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