DAKAR – Sub-Saharan African is in the grip of currency-union mania. Regional groups of countries in eastern, southern, and western Africa are all giving priority to the idea of creating a monetary union. But haven’t we heard this all before in Africa?
Indeed, today’s enthusiasm for currency unions ignores the poor track record of previous attempts on the continent to establish them through peaceful means. A common currency requires unified and centrally agreed monetary and fiscal policies. But this necessitates political integration, which, as the troubles of the euro this year have demonstrated, is a hard sell among nation-states.
Before the euro’s arrival on the international financial scene in 1999, the only examples of countries with common currencies were neo-colonial francophone Africa and nineteenth-century precedents like the Latin American and Scandinavian monetary unions. The creation of the CFA franc, which gives France control of 65% of the CFA countries’ foreign-exchange reserves, combined currency convertibility with a grossly overvalued parity – pegged first to the French franc and now to the euro – as well as trade barriers. This led only to structural deficits, vast capital flight, and, in 1994, a 100% devaluation.
Yet, despite the difficulties that have bedeviled the CFA (and the euro of late) – indeed, despite the absence of viable regional customs unions (except in the East African Community), let alone a single market – Africans retain a strong allegiance to the idea of a currency union.