Projecting a future can provide agency to realise what is selected to be addressed or do the exact opposite. Instead of projecting a future, what may be more sensible is to create a future by making it change both the makers as well as the destination.
In this OAU/AU@50 Jubilee, the question of whether Africans know where they have been, where they are now and where they are able to go is critical to reflect upon and to chart a future that will close all varieties of coloniality for good and open a free, prosperous, spiritual, humane and free and independent future.
Africa’s new relationship with the rest of the world will be born when Africans learn to neutralise the harm that the unholy trinity of loans, aid and debt has done to them. How can Africa construct a future by creating a Pan-African monetary union to forge an integrated relationship with each other in order to relate with the rest of the world on equitable, fair and just principles and values and not through dependence and subordination as it is broadly understood to be now?
Africa’s new relationship with the rest of the world will be born when Africans learn to neutralise the harm that the unholy trinity of loans, aid and debt has done to them. One key initiative African leaders can take collectively is to establish a dual currency system that can largely self-finance an integrated African development. The currency for the domestic economy should be an inconvertible people’s money. The existing state currencies that are not exchanged directly with each other, and whose exchange rate is mediated with the dollar, the franc and the Euro, should give way to direct exchanges based on a fair settlement of the appropriate par value. Naturally, diversities, inequalities, different levels of development, differing attitudes and interests present problems in constructing a workable unified currency system.
It is precisely to deal with these varied problems that Africa needs a currency system to create liquidity. The direct exchange of local currencies promotes the exchange of private labour across Africa. The exchange of the local to local currency via a global currency continues to fragment Africa and integrate discrete interests and regions with the world economy. The key is to find strategies for Africa to integrate with a world economy as a whole and not in parts.
The domestication of the foreign orientation of the existing national currencies is necessary to make Africa re- link with the world economy on its own terms and not terms dictated by others. Monetary union is a key strategy to bring about a new relationship. Its proper construction requires bountiful political will that we cannot take for granted exist given the ties and propensity of the existing states not to pursue real collective action that matters. Differences in economic size and significance of the existing 54 states cannot be shunned aside. In principle, large and small economies can enter into a unified system without loss. As long as a situation of ‘being better off for some without being worse off for all’ exists for all those embarking on currency union, negotiations for a peaceful and evolutionary monetary system can proceed. At all costs states should not demand parity between large economies and small economies. The objective is in the end to evolve into a unified market, unified currency area and unified economic zone. However, the move must be sensible and realistic and various domestic constituencies and their external supporters within the existing states have to be brought along by initiating a programme of fair, gradual and transparent African-wide currency or monetary union. If the cost and benefits for the various sections of social groups can be fairly worked out, possibilities exist even to neutralise transnational, supranational actors, who will no doubt be worked up by the suggestion for an African monetary union.
There are innumerable informal, spontaneous and voluntary cross-border transactions in Africa. Most of those engaged in such transactions would prefer exchanging their goods for hard currencies such as Dollars or Euros. This is often related to the pegging of local currencies with the US dollar and the Euro. An African currency that can be built up to serve as a sort of local Dollar, Euro or Franc will stimulate the domestic market and the communication amongst African regions, peoples, communities, markets and states.
Once agreed to embark on the process to make a unified currency, adjustments can be negotiated, trust can be built and exchange rates can be settled. The unified currency will assist gradually to overcome the limitation of many weak currencies with new money serving as a unit of account, a store of value, means of payment and means of circulation convertible within Africa.
The Case for an Inconvertible African Currency until Africa creates Economic Integration?
African economies are said to be rising, some even being described as roaring lions. African economies continue to import and export vertically and not horizontally with each other. This structure reflects also a largely unchanged trade pattern between Africa’s primary products and manufactured products from the western world. Economic diversification is still a job waiting to be done. The weakness of African currencies is tied to the lack of a diversified economic structure. The price of foreign money is high and the price of local money is low. For example, the French Franc used to be 100 times the local CFA Franc in West and Central Africa. One Euro is CFA 665.957. Now the Franc is dead in France replaced by the Euro and is alive in West and Central Africa! Tourists and real estate dealers with French francs or Euros can purchase services and local assets in Africa with a couple of thousands of these notes. Africans wishing to import French and Western goods will want to get hold of French francs (and now Euros) as their money is too weak to purchase foreign goods. African exports should be cheaper but with so many tariff barriers to Africa’s primary and semi-manufactured goods and worsening terms of trade, and unchanging commodity portfolios, the advantage of devalued local currencies is neutralised. Africa in the CFA zone largely loses both in its exports and imports based on the existing arrangements.
Money and financial flows still occur between Africa and the west rather than within Africa itself. Inter-African integration, mobility of money, labour and capital is more difficult than the movement of money, people and capital between African states and the west. This pattern has been reinforced by the system of Africa’s dependence on loans, grants and debt. When debt repayment becomes a priority, the political economy of the interest of the International Financial Institutions (IFIs) becomes paramount. When improvement of the standard of livelihood of the population is a priority, social spending will be necessary to bring it about. However, despite the rhetoric by the IFIs as “friends of the poor” following policies of poverty reduction, loans through such schemes as the heavily indebted poor countries schemes (HIPCs), policies of structural adjustment have been followed, in reality, at the expense of social spending for development. Africa has been confronted with a stark constraint: a policy structure that has privileged debt repayment over development. International politics and economics have forced this policy choice over a Pan-African alternative. The key issue for African futures is: to maintain or to change this policy structure is an important issue confronting Africa in the remaining 21st century and the soon arriving and coming 22nd Century. The Pan-African quest is to change the African situation, while the IFIs want to retain the status quo of debt- payment as a priority under the guise of the poverty-reduction rhetoric. Debt-repayment distorts African economic policy in the direction of producing the things Africa cannot consume and to consume the things it cannot produce. It leads to the orientation by the domestic elite that revel in luxury consumption unwilling to forgo whiskies, cars and other private comforts for the production and development that service the wellbeing of ordinary people. It leads to a new political economy of the syndicate. The latter designates the symbiotic relation of the domestic elite in relation to the external donors: the international elite centred within the IMF, World Bank and the WTO. Together the syndicate (whatever the misgiving between and within) promotes export-orientation, the economic bible of comparative advantage and competitiveness to solve Africa’s piling debt with yet more and more loans based on more and more stringent conditions.
The advice from the international elite is to keep the capital account of African states open and unregulated. This furthers the vulnerabilities of Africa’s economies to fall prey to cyclical fluctuations in the world economy. They become easy victims to fast movements of speculative finance that episodically ravishes whole economies like gales. The existing 54 state monetary arrangements in Africa are too fragmented to withstand powerful movements in world finance and business cycles.
There has to be a creative way of breaking out of this trap for Africa. We back cast to look for any past attempts to forge currency unions in order to forecast feasible alternatives to get Africa going.
Monetary Union is not new in Africa!
The origin of the modern monetary unions is traceable to the colonial encounter between Europe and Africa. The most enduring currency union has been that managed by France. Those started by Britain and South Africa seemed to have lacked continuity from the colonial to the post-colonial periods.
France planted the roots of the CFA Franc zone in 1945. This was a result of a decision by the French colonial Government to crowd out the various local currencies and establish the ‘frank’ as the sole money legally tender throughout the French colonies of West and Central Africa since 1948!
France retained its control over the monetary arrangement of its West and Central African ex-colonies in the 60s by creating two regional currencies that retained cleverly the ‘CFA franc’ designation in both regions. The exchange rate between the ‘CFA francs’ of the West African Monetary Union and the Central African Monetary Area were made equal-both maintaining the same parity against the French Franc and capital can move freely between the two regions. Both monetary areas have since comprised what France calls the ‘African Financial Community,’ where each currency is only legal tender in its own region, despite the currencies being jointly managed by the French Treasury as integral parts of a single monetary union.
Though France was not a member of the CFA itself, its Ministry of Finance held the operational accounts and the foreign-exchange reserves of the Central Banks of West and Central Africa. France insured convertibility of ‘CFA franc’ at a fixed price, set and controlled rules for credit withdrawal and maintained a ratio of 50:1 between the CFA franc and the French franc for half a century. In 1994 there was a devaluation of the ‘CFA franc’ to the ‘French franc’ by a ratio of 100:1. In January 1999, the CFA was pegged to the ‘Euro’ rather than the ‘French franc’, but in all other respects the French Ministry of Finance retained substantive control over the ‘CFA franc’ zones. The Euro seems to have been introduced via France into West and Central Africa two years before twelve of its members began to use it as legal tender in 2007.
The British also had created a less successful East African Currency Board in 1919 and issued a common currency unit, the East African Shilling, as legal tender in Kenya, Tanganyika and Uganda. After independence in the 60s, the common currency area broke apart. Efforts to mend the break up are still continuing with the re-establishment of the East African Community.
In addition during the 1920s the then independent Republic of South Africa collaborated with the colonial powers to create a common monetary area. The Common Monetary Area embraced South Africa, former British colonies Botswana, Lesotho and Swaziland and the then German colony, Namibia. After decolonisation in the late 60s, the ‘Rand Monetary Area’ was formed in 1974, though diamond-rich Botswana was not in it preferring to set up the ‘pula’ as national money. The monetary union based on the rand has gradually loosened into an exchange rate union and appears to falter as a sustainable monetary union.
The division of Africa into currency zones has eased largely through the demise of the sterling area. However, the franc zone is still active and the dollar has moved into hitherto sterling areas and even in the CFA franc zones. Both the dollar and the ‘franc cum Euro’ will not easily give up their control of Africa. In particular France will not easily give up its exclusive hegemony over much of West and Central Africa comprising together some fourteen existing states. The pegging of CFA francs to the Euro has not loosened the French grip over the monetary area. Such continued French grip can affect the effort to create a big-bang evolution into an African monetary system
It is interesting to note that more efforts were made during the colonial period to create currency unions than in the period of political independence. The fact that Africa was diverted from following Pan-African directions in the post-colonial period meant that projects for currency unions to create liquidity to finance inter-African development were abandoned. Part of the problem was continued pressure from the ex- colonial powers. The British pound in Western Africa was used to punish nationalist regimes like Ghana prompting the creation of the cedi when Britain devalued the West African pound.
Some ideas for an African monetary union now?
- A unified African currency must be built as stable so that all those engaged in transaction can benefit without inflation and/or deflationary pressures.
- Acts of discrimination and restrictions on legitimate or lawful transactions in all markets must be forbidden.
- The trade system within Africa must be open, free and fair and the African security environment should sustain this freedom of internal trade and investment.
- There must be an agreement for the leading members of the AU community to guarantee and underwrite the smooth and stable functioning of an African currency. These leading members can be selected from the regions. The selection of the members has to be based on consensus and consent.
- The transition from the state-based currency system to the African monetary system must be based on lawful, non-dislocation and evolutionary strategy. The transition must be voluntary based on principles of persuasion, consent and the pursuit of common objectives.
- The transition from the use of current state-based currency arrangements to a unified one requires that states are willing and committed to co-ordinate monetary, interest and budgetary policies amongst themselves. They understand that currency integration adds to their sovereignty rather than subtract it. Both the dual currency and the currency union will be used for helping to insulate states from borrowing to fall in debt by creating Africans own liquidity to finance Africa’s development.
- The African monetary union will resist existing African monetary arrangements that mirror the breakdown and fragmentation of African economies as they are today. The currency union will also resist the lingering domination of the ties and habits of relations with ex-colonial powers.
The currency union has to deal with the impact on Africa of the contention and competition of the dollar, the Euro and the yen for global influence. The dollar has an overall overarching influence in the continent today in that in some countries it is freely used as a means of exchange as in the USA. This shows that if there is no unified currency union, Africa will be a battleground between the Euro and the dollar. The Yen may not be as influential as the Euro and the dollar in Africa, but it is there in the wings. These three currencies will compete in Africa and the AU must prepare the ground to found a currency union to protect Africa’s developmental aspirations.
A possible Pan-African Monetary Union?
It is time to pick up monetary or currency union as part and parcel of the African Union national project. For a monetary union on an African scale, the African Union has to authorise an African Central Bank to issue a currency unit (call it, if you like an ‘AFREE’ or something else) that can serve as a principal medium of exchange, unit of account and store of value for the whole continent. The strategy is to join together African states into a kind of monetary marriage. An African monetary union is one important way of moving closer to making the Pan-African vision a reality.
The necessary conditions for making moves towards a Pan-African monetary union are:
- The smooth transition of power from France and EU to integrate the CFA franc zone to the African Union without breaking up the common monetary area. In addition, to upgrade, adjust and persuade the states in the rand monetary area and other bilateral and multilateral efforts such as the East African common market to join the all-African monetary system.
- A new liquidity creating mechanism backed by Africa’s mineral resources and African Union confidence building measures to support an African currency to circulate freely in the member states.
- A determined effort to re-link with the IMF, countries like France or the European Union on their clear acceptance of Africa’s national developmental priorities and not Africa’s continued indebtedness to them by preventing them to take a leading role in designing an all-African currency union.
- To negotiate the par value amongst the Euro, the dollar and the African currency for the purposes of managing Africa’s foreign trade in the service of African development with the rest of the world.
- To control the authority of adjustment of the African currency to the dollar and Euro in the AU.
- To establish a strict control over the external flow of Africa’s currency by making its sole value to assist the development of Africa. The African continent incurs losses worth $50 billion every year due to illicit financial outflows by some foreign companies in the continent.¹
- To phase out gradually the existing currencies within the 53 African states.
- To create and manage a dual currency system where like the Chinese Yuan, the African currency is inconvertible by becoming a unit of account and means of payment for stimulating inter-African trade and investment. There should be a build-up of foreign reserves backed by mineral wealth and the growth of Africa’s labour productivities from which a foreign transaction account can be kept for the purposes of trading outside Africa.
The key importance of a currency union and an inconvertible African currency is to make it possible to raise domestic financing by enlarging the domestic market and stimulating a comprehensive and an integrated development of the continent. The currency has to be legal tender across Africa, and requires an African consensus to make it work. Above all, what is needed is a political will to imagine and construct an African general will. The political consensus is overriding to make the compelling economic and organisational case to establish the African currency and monetary union a reality.
Africa’s monetary union is not conceived to join together existing currencies but to overcome the weaknesses of the admittedly weak and fragmented existing currencies. It falls within the strategy in bringing about change where Africans are able to exchange their private labours in order to consume the products of their own creations rather than the numerous luxury products their elite’s consume coming from outside by manipulating foreign exchange. The monetary arrangement can be designed in such a way that Africans consume the products they produce, and discourage them from consuming luxury items for the few who own foreign dollars and Euros.
A suggested dual currency model?
The monetary and currency union is part and parcel of the realisation of the African Union project. The African Union will have to authorise an African Central Bank to issue a currency unit (call it the Afree, the AU suggests Afric!) that can circulate across the continent. This currency is convertible only within Africa. The purpose is to bring about rapid inter- African integration. It should have a shadow as opposed to real foreign exchange price to the dollar, franc/euro, Yuan, rupee, sterling and yen for the purposes of domestic circulation and means of payment. Exchange rate par value and convertibility should be confined for transactions between Africa and the rest of the world through a foreign exchange reserve fund. The AU should create and manage a dual currency system: the domestic currency with the currency for trade with extra-African regions. Such a dual currency system, like the Chinese Yuan in the 1980s, would make Africa respond to the challenges of domestic mobilisation of financing as well as countering external assistance to turn into piles of debt. The convertible African currency stimulates Africa to respond to the global environment positively and the same currency in its inconvertible form stimulates raising domestic finances to make a bottom-up transformation of Africa where Africans learn to appreciate and value products, knowledge, trade and investment in Africa itself.
The foreign exchange reserve account should be managed by an African Central Bank. Foreign money, assistance, borrowing and transactions for import and export should be drawn from this reserve foreign exchange fund.
This fund can be built up through a variety of sources:
- international assistance,
- African reserves backed by Africa’s mineral wealth,
- Africa’s expected rise in labour productivity,
- possible African Central Bank ‘ex-nihilo’ credit creation, and
- the use of a variety of treasury bonds and e-commercial activities.
The AU should authorise an African Central Bank to negotiate the par value amongst the Euro, the dollar and the African currency for the purposes of expanding and managing Africa’s foreign trade in the service of African development with the rest of the world.
Such a dual strategy for liquidity generation can, if managed well, insulate Africa from the debt trap. The peoples’ inconvertible money can circulate Africans private activities free from piling up any internal debt. The convertible foreign exchange reserve funding account can be prudently managed to keep at arms-length the IMF and other private bankers from manipulating Africa’s priorities into debt payment. Instead of loans, debt and aid, the main prop for creating liquidity to finance African development becomes Africa’s mineral resources, its labour productivity and African Union confidence building measures.
A determined effort to re-link with the IMF, countries like France or the European Union on the basis of the dual currency system must be made. The latter may not see kindly to this strategy and they will browbeat African leaders for not playing along the globalisation bandwagon. The challenge for African leadership is to make the dual system work by applying law to forestall black market problems and corruption. Financial governance including e-governance is very important. The stakes are high for the choice between the dual currency system and the IMF is whether development or debt wins for shaping Africa’s futures. IMF and World Bank loans invariably have turned into debt. The challenge is whether these external actors can be persuaded by Africa’s own ingenuity to help it. Need they accept without any fudge Africa’s developmental priorities or not? Only when they accept the African priority for development over debt can they be said to be subscribing to a principle for Africa to relate with others on the basis of solidarity and not dictation. In addition, the adjustment, convertibility and exchange rate policy-making authority in relation to foreign currencies must lie with the AU.
The foreign exchange reserve fund is recommended to allow Africa not to lose and, in fact, benefit from globalisation while neutralising the adverse effect from it. The fund will not be used to purchase luxury items. It is set up to purchase technologies, draw in needed experts, train personnel and implement something like the official Africa’s NEPAD initiative. There must be regulation and oversight over the external flow of Africa’s currency by making its sole value to assist the development of Africa.
There should be a transition period to phase out gradually the existing currencies within the 53 African states. The dual currency will enlarge both the domestic market and Africa’s entry largely on its own terms to benefit from globalisation. Together the internal and external expansion of Africa’s opportunities is hoped to stimulate a comprehensive and an integrated development of the continent.
The key constraint is political. For the dual system to work, it requires an African consensus and the political will to create an African general will. This can happen if African leadership transforms from governing by force, deception and blackmail to government by permanent consent through the’ mid-wifing’ by Africa’s own organic intellectuals combining strength and conviction in making Pan-African ideals work for Africa and above all the ordinary people of Africa. The key is the transformation of the quality of leadership- to become and be guided by moral and intellectual power. The leadership quality and the broad framework for making political consensus are overriding to make the compelling economic and organisational case to establish the African currency and monetary union a reality.
Not a mere proposal, the Union Government must be real?
A monetary system for the making of free Africa requires a substantially different approach from the process of monetary integration that is taking place within the EU. Unlike the European monetary approach to create an optimal currency area, an African monetary system is a key instrument to forge the completion of Africa’s emancipation. The concept of an African currency union is to be constituted to undo and overcome, reverse and convert the history of Africa’s grand oppression into an autobiography of liberation. It is thus a qualitatively different system differing in purpose, functioning, objective and intention from the pattern of monetary union of Europe where the issue is to unify fairly well functioning currencies in order to exploit the advantage of an enlarged market. Africa’s currency union is thus part and parcel of the overall struggle to mobilise finance internally in the effort to inter-connect states, peoples, communities, regions, economies, households, and families, individuals and markets across Africa. It is a weapon for eradicating violence and poverty by facilitating political and economic integration. It is a weapon in the democratisation of African politics, economics and public life. It will be used to promote primarily inter-African trade, investment, infrastructure, communication and electrification, the creation of jobs without state enclosures, borders and barriers, and generally to found, build and open Africa as a dynamic, prosperous and independent national economic and social system. Once Africa has an integrated economic and political system, it would create the necessary condition to forge a real partnership with all types of economies and regions of the world.
Monetary union with the proposed dual currency union is one key way to unite public policy to promote the African public service. This currency union will require that the broadest, deepest and most consequential pan-African education, consciousness is spread so that every child, every man and woman grow up with the African identity as a primary feature of citizenship. The day, when each country emerges also with the African identity and citizen as a guarantee for communicating both within Africa and the rest of the world -is also the day when Africa would have entered the fast lane to stand up and be counted in the world.