Africa needs a single currency

… and increase intra-African trade flows

Africa is entangled amidst challenging developments in the national and world economies.Let me say that the COVID-19 Pandemic, among others, led to quantitative easing in developed countries, which, in turn, led to growing money supply by as much as 40 percent in some jurisdictions,and, consequently, rising levels of inflation.

Shortly after that, the sanctions emerging from the conflict in Ukraine caused global supply disruptions
which in turn fueled inflation.

In both cases, interest rates also rose, and in developing countries, this led to higher debt servicing
payments and repayments as well as currency depreciations.
In some parts of Africa, inflationary pressures are also coming from drought situations, complemented
with energy shortages for those countries which depend on hydroelectricity.
Against this background, we can recall the advice of the late Milton Friedman and I quote him: “Inflation
is always and everywhere a monetary phenomenon.”
From this quote, you as the African Monetary authorities have the supreme duty to bring down the
levels of inflation across Africa, which are currently in the range of single digit to three-digit levels across our countries, the highest being 157.9 percent.

Bringing down inflation would result in improving the welfare of our people.
Equally important, reducing inflation would result in macroeconomic and financial stability and create
better conditions for inclusive growth and sustainable development, including the development of our
emerging stock, bond and mortgage markets.

As we strive to leverage big data and artificial intelligence to complement interest rates in bringing down
inflation, I am sure we are fully aware that effectively harnessing these is anchored on investments in
human capital, physical Infrastructure as well as affordable and reliable supply of energy.
This precondition brings us back to the agenda of promoting inclusive growth and sustainable
development.

Although this is not an area of activity for monetary authorities, they create the necessary conditions for
the effective execution of this agenda by authorities managing the real sector of the African economy.
In addition, reducing levels of inflation would create a conducive environment for effective implementation of the macroeconomic convergence criteria of the African Monetary Programme adopted by the Assembly of the African Union Heads of State and Government in 2022.

Africa requires effective and timely implementation of the macroeconomic convergence criteria to lay
the groundwork for the establishment of the African Central Bank, and immediately after that, a single
African currency.

The continent needs a single African currency to, among others, increase Intra-African trade flows, and
this is key to strengthening the African economy and making it more resilient to endogenous and
exogenous shocks.

The urgency in timely and effective implementation of the macroeconomic convergence criteria is
further driven by the fact that even before Africa reaches continental economic integration characterised with the establishment of the African Central Bank, the permanent membership of the African Union in the G20 provides prospects for the Chief Executive Officer of the African Monetary Institute, when it is operational, to be a member of the African Union delegations to the G20 Finance Ministers and Central Bank Governors meetings as well as the working groups of the G20 Finance Track.

When the African Monetary Institute transforms into the African Central Bank, the Governor will be
attending the G20 Finance Ministers and Central Bank Governors meetings since this is one of the financial institutions of the African Union, together with the African Monetary Fund, African Investment
Bank and the Pan African Stock Exchange.

A new development is the operationalisation of the African Credit Rating Agency, which will, among
others, contribute to the development of a Pan African capital market.Once more, I am calling on our monetary authorities to come up with practical measures to bring down levels of inflation across Africa and contribute to improving the welfare of Africans.

By Albert M. Muchanga
The author is African Union Commissioner for Economic Development, Trade, Tourism, Industry and Minerals

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