The United States of Africa: An Idea Whose Time Has Come (Part III)
The Problem: Too Many Currencies in Africa
As of 2021, the African population stands at approximately 1.4 billion people, accounting for nearly 18% of the global human population.
Africa is composed of 54 recognized nations which operate with 42 distinct currencies. If there’s any hope for Africa to untangle itself from the shackles of economic disparity, the dizzying labyrinth of its 42 currencies cannot be ignored.
According to the International Energy Agency (IEA), 600 million people in Africa, or 43% of the total population in the continent, lack access to electricity.
The First Step: Replace the 42 Separate African Currencies With One Currency
As explained in “The African Uhuru White Paper,” the primary purpose of the creation of the African Uhuru cryptocurrency is to replace the current 42 separate African currencies. Initially, the 54 African nations do not have to trust one another. They merely have to trust the unparalleled security and dedication to decentralization of the African Uhuru blockchain code.
The African Uhuru cryptocurrency is intended to be the first step on the road to the founding of the United States of Africa.
The Problem: Too Many Currencies in Africa
The immense domestic market of the United States reaps significant benefits from having a unified currency instead of, hypothetically, 50 separate state-level currencies. Similarly, the appeal of a single currency across a wide market was persuasive enough to encourage 19 out of the 27 European Union countries to abandon their historically independent currencies in favor of the Euro. Yet, in stark contrast, the nations of Africa operate with 42 distinct currencies.
A novel initiative, the African Continental Free Trade Area, aims to diminish barriers to trade and investment across African nations. This project could potentially catalyze productivity and economic growth throughout the continent. A World Bank study from June 2022 estimates that it could yield income gains of 9% by 2035 and alleviate extreme poverty for 50 million individuals. However, to fully capitalize on the potential of trade, the issue of having 42 separate currencies must be addressed and overcome.
In theory, it’s plausible for the nations of Africa to converge under a single unified fiat currency. However, in practical terms, this remains an unlikely prospect. Currently, 14 African countries utilize the “CFA franc” as their primary currency. These include six in Central Africa (Cameroon, the Central African Republic, Chad, Congo, Equatorial Guinea, and Gabon) and eight in West Africa (Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal, and Togo).
Interestingly, there exist two distinct versions of the CFA franc, one for each aforementioned region, but they maintain a consistent exchange rate relative to the Euro. Collectively, these countries contribute to approximately an eighth of Africa’s total GDP.
Perceptions of the CFA franc are mixed at best. While it has brought about monetary stability, its exchange rate value has, at times, been so high that it stifled exports from these countries. Furthermore, it carries the historical baggage of being a legacy of French colonialism. The current plan appears to be phasing out the West African version of the CFA franc in favor of a shared currency called the “eco,” which may gain wider acceptance across West African nations.
However, the proposed transition is slated for a few years in the future, and it remains uncertain whether the countries utilizing the Central African version of the CFA franc will partake in this change. There are fervent discussions about “reclaiming control of the currency,” yet the existing proposals for the “eco” would maintain a fixed exchange rate with the Euro. This brings into question whether such a change would indeed offer the autonomy and control that some proponents seek.
In summary, the current currency unions in Africa seem to be in a state of flux. The notion of an even broader currency union is not currently being considered. Indeed, it is not evidently clear that a more extensive shared currency for Africa would be beneficial in the present context. A unified fiat currency across a geographic expanse tends to function optimally when the area’s economy is already somewhat integrated through the flow of goods and services, financial transactions, population mobility, and shared government initiatives.
The Challenges Facing the Creation of a Single Fiat Currency For Africa
The concept of a unified currency for the African continent, an ambitious proposition explored by various African leaders and organizations, forms part of the African Union’s Agenda 2063. This vision aims to see an integrated and prosperous Africa, with a proposed timeline to establish a single currency by 2028.
The feasibility of a single fiat currency for Africa is contingent upon numerous factors and presents its own set of challenges. These challenges include:
1. Economic Integration
The creation of a single currency necessitates an extensive degree of economic integration among the involved nations. This implies the alignment of monetary and fiscal policies, financial systems, and economic structures. African economies currently display a significant range of diversity in terms of development levels, inflation rates, fiscal policies, and monetary frameworks. This heterogeneity poses a substantial challenge to the integration process.
2. Macroeconomic Convergence
For the stability of a unified currency, it’s crucial that participating countries attain macroeconomic convergence. This entails the harmonization of elements such as inflation rates, budget deficits, debt levels, and exchange rate stability. Achieving this requires concerted coordination and cooperation among nations to uphold a stable economic environment.
3. Institutional Framework
The establishment of an effective institutional framework is pivotal for the successful execution of a single currency plan. Institutions such as a central bank, regulatory entities, and mechanisms for managing monetary policy and exchange rate stability need to be put in place and properly governed.
4. Political Will and Commitment
The success of a single currency is heavily dependent on the political will and commitment of the participating nations. This calls for robust leadership, coordination, and consensus-building among African nations. Factors such as political stability, trust, and cooperation are fundamental for enacting the required reforms and surmounting potential challenges.
5. Heterogeneous Economies
Africa is characterized by diverse economies with varying levels of development, natural resources, and economic structures. Coordinating monetary policies across such a diverse continent could prove to be challenging, as countries may have different economic priorities and vulnerabilities.
Given the complexities presented by these challenges, the establishment of a single fiat currency for Africa constitutes a complex endeavor that demands meticulous planning, coordination, and comprehensive reforms. Some African nations have already made strides towards regional integration through initiatives such as the West African Monetary Zone (WAMZ) and the East African Community (EAC), which aim to set up regional monetary unions. These regional initiatives could potentially serve as stumbling blocks, rather than stepping stones, towards a future unified currency for the entire continent.
In Part IV, we will examine the differences between fiat currency and cryptocurrency.
Further Reading: