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The Benefits And Costs Of Monetary Union In Southern Africa: A Critical Survey Of The Literature

  • George S. Tavlas

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 reviewed suggests that a relatively small group of countries, typically including South Africa, satisfies the criteria necessary for monetary unification. The literature also suggests that, in a monetary union comprising 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. Copyright � 2008 The Author. Journal compilation � 2008 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

Volume (Year): 23 (2009)
Issue (Month): 1 (02)
Pages: 1-43

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Handle: RePEc:bla:jecsur:v:23:y:2009:i:1:p:1-43
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