Assessing the potential benefits and risks of a currency union.Leaders of the fifteen-member Economic Community of West African States (ECOWAS) have set a goal of achieving a monetary and currency union by late 2020. Although some progress has been made toward achieving this ambitious goal, major challenges remain if the region is to realize the necessary macroeconomic convergence and establish the required institutional framework in a relatively short period of time. The proposed union offers many potential benefits, especially for countries with historically high inflation rates and weak central banks. But, as implementation of the euro over the past two decades has shown, folding multiple currencies, representing disparate economies, into a common union comes with significant costs, along with operational challenges and transitional risks. All these potential negatives must be considered carefully by ECOWAS leaders seeking tomeet a self-imposed deadline. This book, by two leading experts on economics and Africa, makes a significant analytical contribution to the debates now under way about how ECOWAS could achieve and manage its currency union, andthe ramifications for the African continent.
Eswar Prasad is the Tolani Senior Professor of Trade Policy and Professor of Economics at Cornell University. He holds the New Century Chair in International Economics at the Brookings Institution and is a research associate at the National Bureau of Economic Research. Vera Songwe is executive secretary of the UN Economic Commission for Africa. Previously she was regional director of the International Finance Corporation, covering West and Central Africa, and was a country director at the World Bank.
Acknowledgments 1. Introduction and Overview 2. Basic Analytical Considerations 3. Integration through Trade 4. Macroeconomic and Structural Convergence 5. Exchange Rate and Monetary Policy Regimes 6. Illustrative Monetary Policy Rules 7. Institutional Framework, Policy Coordination 8. The Path Forward Appendixes: A. Comparing and Contrasting Asia's and Europe's Approaches to Economic Integration B. Macroeconomic Convergence Criteria for Existing Monetary/Currency Unions C. General Equilibrium Analysis of Alternative Exchange Rate and Monetary Policy Regimes D. Details on Construction of Data for Analytical Exercises Notes Bibliography Index
"Currency unions are as much political projects as economic ones, and the ECOWAS proposal is no exception. As Prasad and Songwe lay out in this valuable book, successfully establishing and maintaining a single currency requires convergence and coordination across a broad range of economic policies, a challenge made harder by the divergence in size and structure of the ECOWAS economies. The lessons they draw should be of interest to policymakers and students alike." --Masood Ahmed, president, Center for Global Development "The two eminently qualified authors conclude that, while West African states do not currently fulfill the prerequisites for a currency union, a single currency could still help in attaining the region's full potential if leaders can find the resolve to implement necessary reforms." --Jeffrey Frankel, Harpel Professor of Capital Formation and Growth, Kennedy School, Harvard University "This highly readable book illuminates Africa's currency question and its contribution to trade and development. The conclusions are convincing and could open a discussion on aspects of currency management in West Africa that have been taken for granted by policymakers over the past 70 years." --Kofi Adjepong-Boateng, research associate, University of Cambridge Centre for Financial History
