Monetary integration on the African continent Automatic translate
The trends of monetary unification in Africa are rooted in colonial times, when monetary regimes, based on currency advice, tightly tied a certain territory to the currency of the mother country. Since then, only the CFA franc zone has remained. Diversity in monetary divergence in Africa has been brought about by the processes of South, West and East African integration, as well as the introduction of electronic declaration. It can be argued that interest in the formation of currency unions resumed precisely in the context of globalization. According to M. Oe, it is with the processes of globalization that the formation of monetary unions in Africa is associated. He states: “The realization that subregional groups in Africa should be organized into functional currency unions has emerged as a result of recent trends in globalization and regionalization, the search for ways to form the African Union and the New Partnership under the African Development Initiative.” At the same time, the attitude to the role of monetary unions on the continent regarding trade stimulation is changing. If earlier studies noted an extremely low structurally determined level of intraregional exchange, now the position is being revised towards the realization that monetary integration on the continent is associated with the effects of creating trade.
So, in 1945, a system of issuing colonial francs (CFA franc) was introduced in West and Central Africa, and in 1951 the monetary system of African territories controlled by France was institutionalized by the type of a currency board with the conversion of CFA francs to French guaranteed by the French government franc. The creation of the franc zone provided for the establishment of two central banks whose competence extended to countries that, accordingly, formed two monetary unions on the African continent: the West African Monetary Union (which includes: Benin, Burkina Faso, Guinea-Bissau, Cote D’Ivoire, Mali, Niger, Senegal, Togo) and the Central African Monetary Union (Gabon, Cameroon, Congo, CAR, Chad, Equatorial Guinea).
The functioning of both currency unions is based on general principles: issuing functions and the implementation of monetary policy are delegated to the relevant central banks; fixing the CFA franc to the French franc (now the euro); conversion to French franc (free transfer of capital); centralization of 70% of foreign exchange reserves as an asset in the accounts of the French Treasury, which operate as operational accounts for international settlements of the franc zone with the rest of the world and, in fact, are an element of balancing the balance of payments. It is no coincidence that these currency unions demonstrate the most stable indicators in the sphere of inflation, becoming a model for inheritance on the continent.
In 1975, the Economic Community of West Africa (ECOWAS, or ESSAA, consisting of Capo Verde, Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone) was created, within the framework of which a union with the West African Monetary Union is foreseen union and the issuance of a single currency. However, the most effective process of regional integration began in 1999 after the victory of the democratic forces in the Nigeria elections, which made it possible to declare at the meeting of the leaders of member countries in Lome intentions to accelerate this process. As regards the monetary aspects of the foundation of EESSA, in the same 1975 the West African Clearing House was established, which was designed to optimize international settlements between business entities of the participating countries in order to create incentives for the development of intra-regional trade and cooperation
In order to create real monetary preconditions for the development of regional integration, in 1987, the Currency Cooperation Program was established, which was designed to harmonize the monetary systems of the participating countries and increase macroeconomic stability in the region, which would create favorable conditions for the formation of a monetary union and the transition to a single monetary politicians. In accordance with this Program, the Clearing House was transformed into a special agency for monetary integration, which would encourage the development of payment systems and intra-regional trading. At the same time, initiatives were developed to develop and implement convergence criteria.
Note that the transition to a single currency in the ECMCA non-members of the CFA franc zone was postponed four times (in 1992, in 1994, in 2000 and in 2004) due to fiscal problems and the unresolved many technical aspects related to the transformation of macroeconomic policies in accordance with the criteria for convergence and the opportunity to participate in a monetary union. In 1999, formalization of the convergence criteria was announced and a new monetary cooperation strategy was introduced at EESSA, the content of which is defined as follows: do not expect individual countries to meet the set requirements, but move through currency unification according to the fast track model. And in 2000, at a meeting in Acre, it was announced the creation of another monetary union, which should integrate with the West African Monetary Union, forming a single economic and currency space. Moreover, by the end of 2002, according to the Accra Declaration, the only central bank for non-members of the ZAEVS was to be created, by the end of 2003, the formation of a monetary union in the territory of these countries should be completed, and in 2004 integration with central banks ZAEVS. As regards the integration processes of the ZAEVS itself, the process of creating a customs and economic union began in 1994, in 2000 the transition to a single external customs tariff was completed, and in 2001 the Covenant on Convergence Policy was adopted.
In East Africa in 1999, Tanzania, Kenya and Uganda signed an agreement on the formation of an economic bloc, which should lay the groundwork for the formation of a monetary union. It is worth noting that on the territory of these countries in the colonial time, the East African Monetary Council functioned, which until 1966 ensured the monetary unity of these territories. The founding of central banks in these countries and the over-expansive macroeconomic policy during the first years after independence made it impossible to comply with the strict restrictions that were imposed on the money supply using the mechanism of the currency board. A return to the idea of establishing a monetary union in this case reflects an attempt to accelerate the processes of regional integration, which, as in the case of the West African currency unions, embodies the idea of accelerating adaptation to the challenges of globalization.
Monetary integration in South Africa is somewhat different, since it reflects the desire of individual very small economies (Namibia, Swaziland, Lesotho) to take advantage of joining the South African rand circulation zone. However, the functioning of the grouping of the Common Monetary Area in Southern Africa has shown ample opportunities to increase monetary stability and create healthy preconditions for economic growth. It is no coincidence that joining the Renda circulation zone is seen as a possible alternative from other South African countries.
In a wider context, under the auspices of the African Union, which is a continuation of the Organization of African Unity, the ideas of forming a monetary union on the continent with a common African currency are considered, tentatively until 2021. The practical implementation of this project, despite all the difficulties associated with political problems, different political systems and macroeconomic policies of individual states, will embody almost all the determinants of the formation of currency unions in the context of globalization: s large domestic market on the basis of geo-economic structure of the education on a global scale; weakening dependence on external shocks, in particular imperfections of global markets; weakening vulnerability to exchange rate fluctuations, the risk of macroeconomic destabilization caused by erosion of exchange rates oriented in support of fixed parities; increasing opportunities for implementing monetary policy with an orientation toward internal equilibrium; improvement of the institutional framework of monetary policy and the leveling of fiscal challenges for the implementation of a price stability policy, on the basis of which favorable allocation conditions will be created for economic growth.
Submitted by: saturn13 (Oleg)