Improving policy credibility: Is there a case for African monetary unions?

Dominique M. Guillaume, David Stasavage

Research output: Contribution to journalArticle

Abstract

This paper analyzes experience with monetary policy in Africa, focusing on countries that have participated in rule-based regional monetary agreements (CFA Zone, East African Currency Board and Rand Monetary Area). We show that African countries have generally lacked the political institutions necessary for governments to commit credibly on an individual basis to financial stability. We argue that monetary unions can provide an alternative means of credible commitment to sound macroeconomic policies, but only under certain conditions. First, exit from a union must be made costly by the existence of parallel regional agreements and/or links to the financial and technical assistance of industrial countries; second, governance structures of monetary unions must be designed so as to maximize chances for enforcement of monetary rules; and third, if a state seeks to break the rules of a union, other member governments must actively oppose such attempts. (C) 2000 Elsevier Science Ltd. All rights reserved.

Original languageEnglish (US)
Pages (from-to)1391-1407
Number of pages17
JournalWorld Development
Volume28
Issue number8
DOIs
StatePublished - Aug 2000

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monetary union
credibility
financial assistance
monetary policy
economic policy
technical assistance
currency
political institution
macroeconomics
commitment
governance
experience
policy
Government
Africa
Monetary union
Credibility
enforcement
Rule-based
Credible commitment

Keywords

  • Africa
  • Monetary and fiscal policy
  • Political economy
  • Regional integration
  • Rules and discretion

ASJC Scopus subject areas

  • Economics and Econometrics
  • Development
  • Geography, Planning and Development
  • Sociology and Political Science

Cite this

Improving policy credibility : Is there a case for African monetary unions? / Guillaume, Dominique M.; Stasavage, David.

In: World Development, Vol. 28, No. 8, 08.2000, p. 1391-1407.

Research output: Contribution to journalArticle

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