Solidarity vs similarity: The political economy of currency unions

Successful currency unions are based on a political mechanism to recycle structural trade surpluses from wealthier to poorer countries, either through formal political integration or informal hegemony. Instead, neoliberal economists and policymakers emphasize similarity between countries as the main criterion for membership in a currency union and argue that any payments imbalances between countries can be resolved by internal devaluation. They also ignore the possibility of market forces leading to divergence and political turmoil within currency unions. Three historical case studies – the euro, CFA franc, and East African shilling – demonstrate that solidarity is essential, while similarity is not. The French government has been a willing hegemon in West and Central Africa, ensuring the survival of the CFA, while political surplus recycling mechanisms have failed to emerge in Europe and East Africa.