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On the Pattern of Currency Blocs in Africa

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  • Etienne B. Yehoue
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    Abstract

    This paper seeks to elucidate the debate over currency union in Africa. The paper examines whether empirical investigation points to the gradual emergence of currency blocs. Based on the historical data on inflation, trade, and the comovements of prices and outputs, I argue that the emergence of large-scale currency blocs in Africa will follow a gradual path and that this dynamic does not lead to the emergence of a single continental currency at this time. Rather, the pattern which emerges seems to suggest three blocs: one in West Africa, a second around South Africa, and a third in Central Africa. Although little evidence is found supporting the emergence of a single African currency at this time, the emergence of an African currency union is not necessarily precluded, since the ultimate decision to surrender a nation''s monetary policy to a supranational institution is not made based solely on economic considerations. I then address the issue of a possible anchor for the union, were it to emerge and opt for an anchorage. I find- based on the trade criterion-that the euro seems to be a good choice.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/45.

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    Length: 38
    Date of creation: 01 Mar 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/45

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    Related research

    Keywords: Emerging markets; Production; Trade relations; Economic models; monetary union; inflation; average trade; trade share; monetary integration; network externalities; central bank; monetary fund; monetary policy; monetary unions; bilateral trade; monetary area; monetary zone; monetary autonomy; international trade; economic community; trade flows; industry trade; price stability; trade pattern; patterns of trade; trade channels; monetary unification; trade shocks; monetary arrangements; trade costs; optimum currency areas; equilibrium model; bargaining power; world economy; trade values; exchange rate risk; trading partner; exchange rate regimes; trading blocs; distortionary policies; economic integration; trade promotion; volume of trade; terms of trade; rand monetary area; open economies; exchange rate policies; common market; european monetary union; political economy; trade volume; international monetary arrangements;

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    References

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    1. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers, C.E.P.R. Discussion Papers 643, C.E.P.R. Discussion Papers.
    2. Silvana Tenreyro & Robert J. Barro, 2003. "Economic Effects of Currency Unions," NBER Working Papers 9435, National Bureau of Economic Research, Inc.
    3. Foroutan, Faezeh & Pritchett, Lant, 1993. "Intra - Sub - Saharan African trade : is it too little?," Policy Research Working Paper Series 1225, The World Bank.
    4. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
    5. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 72, July.
    6. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 31(3), pages 1321-57, September.
    7. Catherine A. Pattillo & Paul R. Masson, 2001. "Monetary Union in West Africa (ECOWAS)," IMF Occasional Papers 204, International Monetary Fund.
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    Cited by:
    1. Romain Houssa, 2004. "Monetary Union in West Africa and Asymmetric Shocks: A Dynamic Structural Factor Model Approach," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2004-17, University of Oxford, Department of Economics.
    2. 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.
    3. Hefeker, Carsten, 2003. "Fiscal Reform and Monetary Union in West Africa," HWWA Discussion Papers 224, Hamburg Institute of International Economics (HWWA).
    4. Katrin Elborgh-Woytek & Julian Berengaut, 2006. "Beauty Queens and Wallflowers," IMF Working Papers 06/226, International Monetary Fund.
    5. Chuku, Chuku, 2012. "The proposed eco: should West Africa proceed with a common currency?," MPRA Paper 43739, University Library of Munich, Germany.
    6. Daniel Agyapong & Anokye M. Adam, 2012. "Exchange Rate Behaviour: Implication for West African Monetary Zone," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 215-228, October.

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