Do benefits of single African currency outweigh the risks?

2 September 2021

Experts were divided on the benefits of a single currency for African Continental Free Trade Area (AfCFTA) members during a two-day roundtable on the topic.

David Luke, strategic director of the London School of Economics’ Firoz Lalji Institute for Africa, expressed scepticism about the possible benefits of any African single currency.

The risks of such an initiative could outweigh the benefits, he told participants at the event in Dakar, Senegal, organised by the Economic Commission for Africa (ECA) and other bodies.

Some economists have suggested that monetary union could boost AfCFTA implementation and facilitate trade between members.

But Luke suggested that alternative solutions could work better for the continent. He advocated an AfreximBank initiative known as the Pan-African payment and settlement system (PAPSS).

The system, which would offer a centralised payment market infrastructure for processing, clearing and settling intra-African payments, would be the optimal solution for increasing the benefits of AfCFTA membership.

“PAPSS aims to establish a clearinghouse payment platform that utilises national currencies,” he said.

“In view of the systemic risks of a single currency, an effective clearinghouse system with room for innovation by utilising financial technology solutions is a viable alternative.”

Jean-Denis Gabikini, acting director of economic affairs at the African Union Commission, said the use of an African Union payment and settlement platform could facilitate payments between African countries without having to recourse to a third currency.

But Adeyinka Adeyemi, senior adviser at the ECA, recommended discussions between stakeholders to examine the possible benefits of a single African currency.

Meanwhile, Uganda’s Independent newspaper reported business leaders and experts have queried whether the East African Community would benefit from AfCFTA.

While around half of African countries have ratified the agreement, others such as Tanzania have held back out of fear that they may not see any benefit and the agreement could fail to protect local industries from imports. 

EAC secretary general Peter Mathuki has called on member state governments to invest in industrial parks and infrastructure.

Long-term stimulus packages for private sector development and specific incentives for cotton, textile and apparel, leather, livestock and agro-processing could help the region’s economies develop, Mathuki said. 

“Instead of competing, EAC partner states need to complement each other. Harnessing our comparative advantage by collectively improving infrastructure connectivity will fast-track regional development,” Mathuki added.

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