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On the Pattern of Currency Blocs in Africa

  • Etienne B. Yehoue
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    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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    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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    1. Eichengreen, Barry, 1993. "European Monetary Unification," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1321-57, September.
    2. Catherine A. Pattillo & Paul R. Masson, 2001. "Monetary Union in West Africa (ECOWAS)," IMF Occasional Papers 204, International Monetary Fund.
    3. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
    4. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, 01.
    5. Foroutan, Faezeh & Pritchett, Lant, 1993. "Intra-sub-Saharan African Trade: Is It Too Little?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 2(1), pages 74-105, May.
    6. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
    7. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72, March.
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