A premature union



African central bank chiefs debated the possibility of a single African currency at a Uganda conference yesterday. Among the advantages cited was that a single currency "removes costs of converting money from one currency to another among African countries" - costs which, in a continent that has too many small countries, may add significantly to the price of intra-continental trade. The experience of the CFA franc, however, which is shared by 14 countries in West and Central Africa, indicates that a common currency may not help a great deal without political stability, debt relief, reduced corruption and relaxation of tariff barriers.



Moreover, a single currency would unite the monetary policies of countries which have different business cycles and are at varying levels of economic development. An African currency governing board would most likely be dominated by South African and Nigerian interests, which are not necessarily good for the rest of the continent. If the African monetary unit is pegged to the euro like the CFA franc, control over monetary policy will move even further away, leading to the possibility of forced devaluations such as occurred in West Africa in 1993. A common currency would also require a degree of fiscal discipline that few African governments exercise at present. It might be a desirable long-term project, but its viability now is highly questionable, and other economic reforms are more urgent.