Africa, like other regions of the world, is fixing its sights on creating a common currency. Already, there are projects for regional monetary unions, and the bidding process for an eventual African central bank is about to begin. Is it worth the effort, and will it provide an important solution to Africa’s problems? Most observers judge that those problems are linked to civil conflicts, corruption, absence of rule of law, undisciplined fiscal policies, poor infrastructure, and low investment, the last of which is due in part to foreign investors “mistrust of African governments”.
Monetary union can in fact address very few of Africa’s fundamental ills. At best, it can produce low inflation, but it cannot guarantee growth, and at worst, it can distract attention from essential issues. A more promising initiative is the New Partnership for African Development (NEPAD), through which African countries hope to exert peer pressure to correct governance failures and thus make progress in correcting Africa’s problems. It is too early to see how effective that process will be, but if it succeeds, monetary union can crown that achievement. If not, monetary union will almost certainly fail, and highlight Africa’s more fundamental policy failures.
