This paper analyses the experience with rule-based monetary policy in African countries which have participated in monetary unions (CFA Franc Zone, Eastern African Currency Board and Rand Monetary Area). We show that African countries have generally lacked the domestic political institutions which would allow individual governments to tie their hands by establishing such rules. Monetary unions have proved to be an alternative possibility for credible commitment to sound macroeconomic policies, but only in cases where exit from a union is made costly by the provision of side-payments (or sanctions) in other areas of regional co-operation, and only when governance structures have been designed so as to maximise chances for the enforcement of monetary rules. We conclude by making suggestions about the design of African monetary unions.
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Paper provided by Centre for the Study of African Economies, University of Oxford in its series Working Papers Series with number
99-2.
Length: 38 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:oxesaf:99-2
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Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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