Monetary Union: the Experience of the Euro and the Lessons to be learned for the African (SADC) Monetary Union
In June 2004, Professor Colin McCarthy presented a paper at a conference, entitled On the euro outside the euro-zone: the South African perspective. The paper addressed the lessons that southern Africa could learn from European Union (EU) monetary integration and specifically whether the region can take their cue from the euro. The backdrop to the paper was the apparent success at the time of EU monetary integration, on the one hand, and on the other, the declared intention of the African Union (AU) and other regional integration arrangements such as the Southern African Development Community (SADC) to evolve into monetary union in the final stages of linear regional integration. In the latter regard the eurozone was widely considered to be a role model of monetary integration and an exercise that could and should be replicated in Africa.
The sceptical views expressed in the paper were not based on inherent weaknesses of the euro as regional currency. The euro was accepted to be a stellar phenomenon in European integration. The argument was that conditions in Southern Africa and Africa as a continent did not meet the requisite conditions for successful monetary integration such as macroeconomic convergence, which was a fundamental building block of the eurozone, and furthermore, that in regions of disparate economies exposed to diverse external shocks a loss of policy space in exchange and interest rate determination would be inappropriate.
Recent developments in the eurozone, however, have revealed that the euro construct has fundamental weaknesses which strengthen the argument that monetary union is a step in the process of regional integration that calls for extreme caution. Hence, this paper extends the argument in support of caution in deciding on monetary union by emphasising certain conditions that the euro crisis has revealed as crucial for monetary union to work. The role model, which started out with acclaim, has in its operation exposed certain structural weaknesses in design. These weaknesses and the conditions for successful union that they imply add more stumbling blocks in the way of achieving monetary union in an African setting.
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