The Euro has brought strength and stability to Europe, but the damage is irreparable if one country falls into debt. Here are the positives and negatives of a single African currency.
By Craig Falck for Africa Report
Photograph: © Helder Almeida | Dreamstime.com
We have seen the pros and cons that most of Europe has experienced with its single-currency policy, the Euro. It has taught the world a number of important lessons, which the BBC identified in 1997 in a Special Report, setting out the advantages and disadvantages of a single-currency environment.
Single currencies are fabulous tools when it comes to ending currency instability. This allows the various nations making use of the currency to have better financial standings with partner countries and other countries from around the world with which they do business. It also allows businesses and consumers within the participating nations to use their money in a number of other states. This means they won’t have to stand in long queues to exchange their money for foreign currency, nor will they lose out because of the exchange rates. While products may have different prices in the individual countries, they will still be more or less in the same region and this will, in turn, promote better trade relations as well as business between the countries.
Businesses would also benefit from a single currency as they would have fewer insurance and hedging costs to cover. These are in place to protect businesses against currency fluctuations, and businesses would also no longer be liable for administrative costs involved with currency exchange and other processes that they usually do when conducting business in another country. Another benefit of a single currency is that it promotes lower interest rates in the participating countries. This is because the countries making use of the currency need to keep control over their monetary policies because they “owe” their counterparts a certain level of respect and professionalism. This adds to the credibility of the country and the currency, which in turn stimulates economic investment, social upliftment and a number of positives related to their economies.
But for every advantage, there has to be a disadvantage. Bringing a number of different countries together to agree on one topic is a difficult task on its own. When each has its own monetary policy and belief, that task becomes even more difficult. And what makes it nigh impossible is the fact that you will find that two or three countries are currently in a hostile situation where they consider one another enemies. There’s also the fact that not all of the countries are in the same position economically and it just makes a single currency very difficult to sustain. And then let’s not forget that, try as they may, some countries will find themselves in trouble regardless of how hard they work to stay afloat. This will lead to them declaring bankruptcy (as currently being experienced by Greece in the EU and a number of other countries using the Euro), which reduces the currency’s credibility and makes for a difficult economic climate. This is what was hoped wouldn’t happen, but it has, and the Euro is facing a very difficult future.
While single currencies can be a great idea and prove advantageous, there are a number of pitfalls, and countries that were once well-off could soon find themselves in serious financial difficulty because of their financial partnership with others who cannot match up to them. Africa as a single-currency nation might work, but there’s a very good chance that it’s doomed from the get-go.
Source: http://news.bbc.co.uk/2/hi/special_report/single_currency/25081.stm
