AfCFTA: Single Currency, and taking the next leap, after PAPSS
By Adebayo Abubakar
The dream of an African Monetary Union (AMU) is as old as the defunct Organisation of African Unity (OAU) formed in 1963, which later transformed into the African Union (AU) in July 2002. But the dream was rekindled sometime early this century according to an IMF report by Paul Masson and Catherine Pattillo, with the idea of socioeconomic integration rooted in making Africa a single trade bloc.
The successful launch of the Pan-African Payment Settlement System (PAPSS) in January 2022 is no doubt a great achievement, and a right move, in the right direction – a strategic one at that. But do I think it will be enough for Africa to rest on that oar? No, it isn’t. This is because looking at it through the lens of Frederick Taylor, using the principle of One Best Way (of accomplishing a task), there are still cheaper and better options as far as the choice of a unified medium of exchange, for the continent to facilitate transnational trade within the continent of Africa is concerned.
When it comes to transnational trades within the continent, differentials in the values of the different countries’ currencies based on the respective strengths of their socioeconomic structures, would play a role in determining how strong the national currencies are. That would affect value allocation to goods and services that are subjects of transaction. But with a unified medium of exchange, issues like that are taken care of. This does not foreclose the possibility of the unified currency existing side by side with the local currencies of the respective countries, as it is in most of the Euro zone countries. Such a single currency, and the local ones would not be mutually exclusive – they can co-exist.
A single currency for the AfCFTA will eliminate such monetary obstacles in converting some currencies- like the Francophone countries’ CFAs, the Nigerian Naira, the Egyptian Pound, the South African Rand, the Ghanaian Cedi, the Kenyan Shilling, among others- to a collectively agreed and acceptable value to all, denominated in the proposed single currency. In this respect, a single currency will make it possible for consumers and investors to reap the full benefits of the “single market” for goods and services across borders and within the continent. A single currency for the continent will contribute positively to the socioeconomic integration of Africa, and by extension, accelerated realisation of the objectives of the AU’s Vision 2063 (The Africa We Want). But, without a single currency among the signatory countries to the AfCFTA (agreement), the allocation of values to goods and services from any member country in the zone would be made very difficult, if not impossible. If Africa could come up with a unified currency, as in the Eurozone using the Euro (€), it would be an upgrade on whatever achievement the PAPSS would ever record.
One must however appreciate the fact that there are different barriers that stand in the way of such a Pan-African scheme. Obstacles like differences in culture, affinity with former colonial masters, strategic bilateral agreement with countries, or entities outside Africa, fear of domination by stronger and bigger countries, differences in the strength of economies of participating countries, and cultural heterogeneity among others, could be reasons why some countries would not be too keen to subscribe to such a lofty idea, as enunciated by Augustin Ntembe of Bowie State University, Bowie, MD, USA, in his report titled “A Single Currency for Africa: Challenges and Possibilities”, published, in May 2022.
Real as these obstacles appear, the emergence of the AfCFTA has necessitated the needs for Africa to start looking in the direction of a single currency for the continent due to the manner in which it would ease, “doing business” among African countries, and bring about the much-craved socioeconomic integration in the region as shown by the successful launch of the Euro, by the European Union(EU).
A single currency will guarantee economic stability across the continent, as the currency is expected to be managed by an African Central Bank. Economic progress in one member nation is bound to have a domino effect on the others, as it will trigger healthy competition among member states. It will also give foreign investors a sense of confidence that they’re putting their funds in an economy that guarantees a massive market with a massive sense of security, and returns on investment. Katharina Hosterholt made these clear in her 2011 article, where she posed a question; “Is it beneficial for the African Union to introduce a Common Currency?”, and also provides answers.
In the light of the above, it is only logical for the AfCFTA to take the next step after successfully launching the PAPSS.
Adebayo Abubakar is a Nigerian journalist. You can reach him via email, firstname.lastname@example.org