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Monetary integration in Eastern and Southern Africa: choosing a currency peg for COMESA

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  • Carlos Vieira

    ()
    (CEFAGE-UÉ, Universidade de Évora, Portugal)

  • Isabel Vieira

    ()
    (CEFAGE-UÉ, Universidade de Évora, Portugal)

Abstract

African countries involved in monetary integration projects have been advised to peg their currencies against an external anchor before the definite fixing of exchange rates. In this study we estimate optimum currency area indices to determine, between four alternatives, which international currency would be the most suitable anchor for COMESA members and for a set of other selected African economies. We conclude that the euro and the British pound prevail over the US dollar or the yen; that the euro would be the best pegging for most, but not all, COMESA members; and that some of these economies display evidence of more intense integration with third countries, with which they share membership in other (overlapping) regional economic communities, than within COMESA.

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Bibliographic Info

Paper provided by University of Evora, CEFAGE-UE (Portugal) in its series CEFAGE-UE Working Papers with number 2012_03.

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Length: 32 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:cfe:wpcefa:2012_03

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Keywords: Optimum currency areas; Monetarry anchor; Currency pegs; African regional economic communities; African monetary integration.;

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  1. Roman Horvath, 2005. "Exchange rate variability, pressures and optimum currency area criteria: some empirical evidence from the 1990s," Applied Economics Letters, Taylor & Francis Journals, vol. 12(15), pages 919-922.
  2. Bayoumi, Tamim & Ostry, Jonathan D, 1997. "Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa: Implications for Optimum Currency Arrangements," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 412-44, October.
  3. Nienke Oomes & Christopher M. Meissner, 2008. "Why Do Countries Peg the Way they Peg? the Determinants of Anchor Currency Choice," IMF Working Papers 08/132, International Monetary Fund.
  4. Roman Horvath, 2007. "Ready for Euro? Evidence on EU new member states," Applied Economics Letters, Taylor & Francis Journals, vol. 14(14), pages 1083-1086.
  5. Bayoumi, Tamim & Eichengreen, Barry, 1998. "Exchange Rate Volatility and Intervention: Implications of the Theory of Optimum Currency Areas," CEPR Discussion Papers 1982, C.E.P.R. Discussion Papers.
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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, Wiley Blackwell, vol. 10(4), pages 586-603, November.
  8. Xavier Debrun & Catherine A. Pattillo & Paul R. Masson, 2010. "Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa," IMF Working Papers 10/157, International Monetary Fund.
  9. Terence D. Agbeyegbe, 2008. "On the feasibility of a monetary union in the Southern Africa Development Community," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(2), pages 150-157.
  10. Zhao, Xiaodan & Kim, Yoonbai, 2009. "Is the CFA Franc Zone an Optimum Currency Area?," World Development, Elsevier, vol. 37(12), pages 1877-1886, December.
  11. 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.
  12. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April.
  13. Tsangarides, Charalambos G. & Qureshi, Mahvash Saeed, 2008. "Monetary Union Membership in West Africa: A Cluster Analysis," World Development, Elsevier, vol. 36(7), pages 1261-1279, July.
  14. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  15. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  16. Fabrizio Carmignani, 2006. "The Road to Regional Integration in Africa: Macroeconomic Convergence and Performance in COMESA," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 15(2), pages 212-250, June.
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