New Monetary Unions in Africa: a Major Change in the Monetary Landscape?

Economie Internationale, 2006, issue 3Q, pages 87-105

Abstract: Africa has important initiatives to build regional currency areas and ultimately a single African currency. Calculations using a calibrated model show that the proposed monetary unions are unlikely to yield net economic benefits for all countries, suggesting that all-inclusive monetary unions are not incentive-compatible—even if trade doubles as a result of sharing a currency. Central banks are assumed not to be immune from pressures to finance governments. While a monetary union will to some extent dilute the influence of individual governments, countries that exhibit fiscal discipline would not want to join a monetary union with others that do not. Given the heterogeneity across countries, monetary unions could be selectively expanded but not encompass all countries in a region.

Keywords: Currency unions; african trade; fiscal discipline; monetary block; models (search for similar items in EconPapers)
JEL-codes: E58 E61 E62 F33 (search for similar items in EconPapers)
Date: 2006

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