African currency dream will be a nightmare

Feature

On that grey Brussels New Year’s Day – January the 1st 1999 – when they launched the Euro, I was at that grey Brussels building when the Finance Ministers of Europe agreed on the fixed exchange rates between their soon to-be-executed currencies and the new, improved, Euro.

They launched bunches of balloons into the grey Brussels sky. And (working at the time for the British tabloids) I was delighted to see some of them return to earth.  Deflated, distorted.  A better man than I would have resisted the temptation to make an analogy with saggy, burst condoms.   I was not that man. 

And so to Africa….

In what must be President Ramaphosa’s biggest mistake since failing to evict all the Ministerial disasters from his first cabinet, he has decided that Africa must have its own Continental currency.  Our own Euro.   The Afro?

Which reminds me of the Euro’s biggest weakness:  it seemed like a good idea to politicians.

A single currency is an economic strait-jacket. Lots of economies bunched together, with restrictive economic goals, and misery if you fail to meet them.

Ask the Greeks.   A few years ago, their economy was brought to its knees.  Not just because of widespread corruption, economic mismanagement, statistical dishonesty.  Although all of these helped.

The problem, I would suggest, is that if you join a common currency, you need to run your economy properly.  Like your currency co-conspirators

The Greeks didn’t, and facing spiralling debts and the strait-jacket of the Euro, they had to seek bail-outs, which came with tough conditions.  The country plunged into a massive recession; unemployment shot up.   What misery.

And this is the problem.  You cannot naively opt for currency union unless you also accept that it must involve a degree of economic convergence.

Africa is not Europe.

If you think the Greeks and the Germans have divergent economies, then look at, say, Botswana and Sudan.  Economic chalk and cheese.  And one can move around a map of Africa to identify many other economic contrasts.  The Good, the Bad and the economically Ugly.

There is a stereotype of the typical American who thinks of Africa as one country.  It is not.  There is a glorious diversity, but this diversity is also an economic one.

Africa may dream of a single currency, but for some it would become a painful nightmare, as the Euro became for Greece.

By all means pursue free trade, as Africane leaders are doing.

But, for now and the foreseeable future, do bury any thoughts of a single African currency.

It won’t work.

Just ask the Greeks.

----South Africa The Messenger