Regional Monetary Unions in Africa: Where Do We Stand?

Demetra Santagati and Marilisa Marigliano
Trainees at the Einstein Centre for International Studies,Turin

In recent years, the debate on the limits and possibilities of the African monetary unions has been under the spotlight. When the Covid-19 emergency had slowly subsided, the African States were eager to get back on track with the long-term integration projects left pending since the outbreak of the pandemic. While the discussion between the States on what economic policies better suit the purpose of implementing the African Continental Free Trade Area agreement (AfCFTA) has been brought back to the fore, the debate has also broadened to include the objective of introducing a single currency, issued by an African Central Bank.

The African monetary union is indeed a long-term achievement whose elaboration can be traced back to 1999, when the Abuja Treaty established the African Economic Community envisaging the adoption of a single currency – the Afro – by 2028. Many documents and political declarations later, the debate is still on the table. Supporters of the monetary integration, as Kenyan President William Ruto, have lately brought new life to the goal through the adoption of the PAPSS (Pan-African Payment and Settlement System), calling for the de-dollarization of financial transactions among African countries. 

Some others have instead raised doubts about the feasibility of the project, highlighting the need for progressive integration to be implemented in other economic fields beforehand. Even the most ambitious document elaborated in this regard, the African Monetary Cooperation Program of 2002, established a six-step action plan, based upon a set of indicators to assess the level of macroeconomic convergence across the member States. Accordingly, the African Union has been supporting initiatives that strengthen the economic integration within its sub-regional economic communities in order to promote the harmonisation of monetary cooperation programmes in the long run.

Indeed, the longstanding issue of common currencies in Africa is a phenomenon worth delving into. The first experiment of regional monetary integration is represented by the establishment of the CFA franc zone in 1945, still in force in both the West African Economic and Monetary Union (WAEMU) and in the Economic and Monetary Community of Central Africa (CEMAC). What is now defined as the CFA franc zone consists in fact in two slightly different currencies, respectively the West African CFA franc (XOF) and the Central African CFA franc (XAF), both pegged to the Euro at a fixed exchange rate. However, due to their colonial roots, they have often been criticised. This is why in 2019 ECOWAS proposed a new currency, the independent Eco, to replace the franc, which was supposed to be introduced by 2020, but is yet to be implemented.

Furthermore, new protocols are being adopted for the upcoming years. Groundwork has been laid for a new monetary union to arise, with the aim of allowing the East African Community members to progressively converge their currencies into a common one. However, the implementation of what would be the East African Monetary Union, initially scheduled for 2024, has now been delayed.

To sum up, many attempts to push further the regional integration of the African continent are being carried out, in the perspective of lowering the existing dependency on the Euro and the US dollar. These long-term projects are to be placed in a context where the BRICS group is striving to create a new global order, relying mostly on local currencies - in other words, de-dollarizing the current international financial system. Although the adoption of PAPSS in the African context moves in this direction, total independence from both the US dollar and the Euro is far from being reached. Further developments are to be expected in terms of regional integration in Africa, which is why we should keep a keen eye on the rise of new monetary unions, holding the potential for significant progress also in terms of political integration and economic development.