Before the African Union congress, I made a case that it would be a bad policy if the continent adopts a single currency without first understanding the serious welfare implications, at least, at the regional level. My thesis was based on the heterogeneous nature of African economies. Indeed, we can have massive welfare losses if the countries lose their abilities to adjust many macroeconomic factors due to a currency union.
Nigeria devalues its currency when it cannot keep fighting it. Under a single African currency regime, a supranational central bank will run the show with Nigeria’s central bank just a window dresser. In other words, there is nothing the Central Bank of Nigeria can do because that power has moved to a higher central bank.
More so, it goes beyond Nigeria, Ghana is now losing it at the currency level: “The Ghanaian cedi came under pressure after racking up a whopping loss of 22.44% against the US dollar. This comes despite the attempt by Ghana’s central bank to hike interest rates to offset shortfalls caused by global tensions in Europe.”
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If Nigeria’s economy misbehaves, its asymmetric impact in the West African region will be massive. The economy of Eti Osa local government area in Lagos State is bigger than the economy of most countries in ECOWAS. So, if we do have Eco, the proposed single West African currency, what will happen is that Nigeria’s economic radicalism will be shared by all the countries since in a currency union, a big player like Nigeria will be expected to have a major impact on the currency stability.
I do not believe that a single currency will fix Africa’s problems; only a favourable balance of trade and payment will do that sustainably and that will come via improved exports. My proposal is to use software to reduce transaction friction associated with multiple currencies. Afreximbank is doing just that and if they succeed, you can pay in Naira and someone in Kenya will receive in Shillings, seamlessly.
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We need to think more about what to produce, consume, and export, that remains the most viable solution to currency stability, nothing much can be done via financial engineering, because every external shock will still mess things up.
There are many things we can package and export, but we first need to define our purpose and create a clear roadmap. We cannot continue to behave like a people devoid of practical reason.