African currency systems : outline note by the Secretariat

i

UNITED NATIONS

ECONOMIC and SOCIAL COUNCIL

Distr.

LIMITED

3/CNo14/WP.1/40

OAU/TRAD/39

8 July 1971

Original* ENGLISH

ECONOMIC COMMISSION FOR AFRICA ORGANIZATION OF AFRICA UNITY

Sixth ECA/OATJ Joint

Meeting on Trade and Development Geneva, 12-20 August I971

AFRICAN CURRENCY SYSTEMS Outline Note "by the secretariat

K71-17O5

s/CN.H/WP.1/40 cau/trad/39

INTRODUCTION

1. This outline note has been prepared as a first response to a recommendation of the Fourth Joint Meeting of the <XA Working Party on Intra-Africaii Tr^de and the OAU Expert Committee on Trade and Development that "relations between African currencies and the

currencies of the developed countries should be studied with a view

to Ringing out olearly the effects of such relationships on the foreign trade of the African developing countries, particularly with regard

to their export potential".

2. The 196O's witnessed major adjustment, in the monetary field in many African countries. New central banks or similar institutions replaced the colonial institutional arrangements wHile banking laws giving scope for central control by the authorities over major

aspects of monetary policy were promulgated*

Most African countries each pose the problem of a small country, independence and acceptance of a passive role in adapting to changes abroad, iach economy is characterized by an extreme open-ness.

up but that efforts sh.ould be directed at expanding them and

revising them to take account of new developments and opportunities

Tl^hTOV°litiOal "* e0°n&mlC °^es\,ithin and ouSlfri

A main hypoth th n

Tl^hTOV°litiOal "* e0°n&mlC °^es\,ithin and ou

A main hypothesis is that the channels of finance and the

lttl !? °T r6 anOther' ae moneta^ ™ °f FraSo

^of

flttl !? T r6 anOther' ae moneta^ ™ °f FraSoeiTci!

franc Africa fundamentally affects the flow of trade; as did the

ToZt^t "^ bef°re ,the monetary independence of African sterling

countries was achieved. This does.not mean that monetary integration

necessarily produces radical chan.es in trade patter^cause

Z^6™*6^ themselves influenced by existing trade rXS! *•?•»«» monetary arrangements are themselves influenced by existing trade patterns. Yet3 exchange restrictions obstructing

payments between African countries account - along with transport

oost8j language, trade barriers, etc. - for the low level of

intra-African trade

j gg, a

intra-African trade.

B/CN.14/WP,1/4O OAU/TRAD/39

Page 2

5. At the present.time African countries discriminate more against

SK S°^ther tha?, ^6y d0 ^ainst some developed count^es^f

the exchange policies followed by a number of individSl African

2SS! re±nfOrCe the PattemS «*"« t ^T set up^politicTand

"be

(i) The role of money in relation to the direction of

tradej

(ii) the role of monetary integration as a companion to

and catalyst for customs unions and other tariff

arrangementsj

(iii) monetary arrangements as a datalyst for co-ordination

or harmonization of investment plansj

level WfS™11* devel0*ments <« the multinational (v) fains from monetary integration in Africa as a

whole, including the croction of an African currency.

t S!Udy °f African monetary integration is particularly

^ ^ °f «~* ^velopmen^ in thei^ternational

The proposed outline

8, The outline is divided into five mad or carte

£ Si is tVZSSJ?^0™ currency systems, while th.

XJ"L ls t0 analyse the process of monetization «+

OAU/TRAD/39 4//4

Page 3

1. History of monetary systems in Africa A. tre.colonical era

B. Colonial period C. Post-independenoe

2. African monetary systems in a world setting

A. The Bretton Woods system

B. African currencies and the International Monetary Fund 1 C. Ties of African currencies to metropolitan currencies

) The Sterlin-g jj?ea 2) The Franc Area

3) The £)scudo Area

3. Africa*s interest in international monetary control and reform

A. The dollar standard and the SDH system B. Prospects for an international currency C. Prospects for an European currency D. Global inflation

II. ANALYSIS OF AFHICAJff CUHR^"CY SUTSTMS 1« General principles

A, Adjustment, liquidity and confidence problems B. Seigniorage problems

C- Monetary independence and the exchange rate issue

D. Exchange systems in Africa

(1) Convertible currencies

(2) Inconvertible currencies (3; The domain of convertibility

2. Former Franc Africa

A. BCiUO, BCEAECj Malagasy Republic

B# Guinea, Mali, Morocco, Algeria, Tunisia 3* Former Sterling Africa

A. The ^ast African countries Kenya, Uganda and Tanzania Malawi and Zambia

"iv ■•

Page 4

B. West African countries

Sierra Leone and Gambia Nigeria and Ghana

C. Sudan, Sgypt, Libya, Somalia " '

D. The Rand Area South Africa

Botswana3 Lesotho, Ngwame, Namibia

£• The Rupee Area Mauritius Seychelles

4* Other areas

A. The Escudo Area B. The Peseta Area

C. The Congo (k), Rwanda, Burundi

D. Ethiopia E. Liberia

III- THS DISTRIBUTION OF SEIGMORAGE AND MONETARY INDEPENDENCE

1. The Transfer of the issue privilege and the doctrine of seigniorage

A. Ownership of assets and liabilities and the process of

monetization

B. The division of the post seigniorage benefits C. Control of the note issue

J>. The implications of devaluation

1) The case of Sterling

2) The case of the French Ifranc

2, The transition from colonial to national currencies A* Sterling Area divorce arrangements

B. The CFA franc countries? Guinea and Mali, Morocoo, Algeria and ..Tunisia

C. Cases of ithio^-ia and Somalia 3« Monetary independence

A. Independent currencies vs independent policies B. Number of countries and central banks

C- Separate management and separate policies

OAU/qkAD/39

5

IV. INTBA-AFRICA TRADE

1. The level and structure of African trade

2. Barriers to intra-African trade A. Real barriers

Transportation Information

B- Artificial barriers

(1) Trade policy (2) Administrative

C. Monetary barriers

Separate currencies

Exchange risks and controls

Currency preferences, scarce currencies Inconvertibility

V. RELATIONS B3T«b3Br CHAMSLS OF FIMTCE AKD CHAKFcHLS OF TRADE

1. Levels of monetary integration A* Policy of information

Contact and confidence

Exchange of research and plans Research pool

Choice of research

(5)

Basic research Policy research Cbmmon administratior

E. Common goals

(1) Common inflation rate

C2) Employment policyj labour mobility and exchange rates

(3) The right to devalue and the problem of regional

unemployment

Stage of integration and effects on trade A. Finance for intra-African trade

B* Diversification and the insurance principle C. Intra-African reverse discrimination

D# Planning and management gains

E« Spillover effects on employment and trade policy

OAU/TRAD/39 /4/

6

3* Relation between tariff regions and currency areas A* Currency areas and tariff areas

B. Patterns of trade and monetary zones in Africa .Entente countries and Ghana

UD^vC AITO U3LAC

tfest African Customs Union and UMGA

_ast African Common Market and the i>A shilling

The role of monetary integration in political integration process in Africa

A. Monetary agreements, trade agreements and economic oo-operation E, The African payments union

The long—run and the short—run

A. Long-run: An African Economic Community

("0 Labour market ■ .

(2; Commodity market

%) free trade area

"b) Customs union

Central Reserve Bank Common research Reserve pool

Regional economic planning

a) Investment and trade policy

"b^ City planning policy

o) Long range objectives

B. The short—runt African Research Centre

(3)

(4?