This paper deals with the question whether a common currency is beneficial for the African Union. In order to assess this question, potential problems will be analysed and highlighted. The topic of a common currency becomes important in terms of economic growth that can facilitate sustainable development.
The African Monetary Union is an economic and monetary union. The plan to introduce a common currency is based on the Abuja Treaty that was signed on 3.6.1991 in Abuja, Nigeria. In this treaty it was decided to set up an African Economic Community, an African Central Bank and an African Economic Community with a single currency by around 2020 (Masson, Milkiewicz, 2003). Up to today most countries have not signed this proposal as some decided to form their own currency unions, some want to delay the starting date and some are already using currencies from other countries.
The paper will start looking at the advantages and disadvantages of a common currency and putting it into context with sustainable development. Here it can be highlighted that a successful and stable common currency can foster economic growth and therefore result in higher sustainable development.
Further on, the paper looks into the theories of an Optimum Currency Area, Economic shocks, Spillover effects, currency adjustments and development traps.
In order to analyze these theories the analysis part is looking into these using inflation rate data, GNI per capita and trade pattern provided by the IMF, the World Bank and UNECA, while contrasting it with the difficulties due to the development traps.
Table of Contents
- 1. Introduction
- 1.1 Theme
- 1.2 Problem Definition and Research Questions
- 1.3 Background Knowledge: The Advantages of a Common Currency Union
- 1.4 Background Knowledge: The Disadvantages of a Common Currency Union
- 1.5 Common Currency Union and Development
- 2. Theory
- 2.1 Optimum Currency Union
- 2.2 Economic Shocks
- 2.3 Spillover Effects
- 2.4 Currency Adjustments to Cope with Economic Performance
- 2.5 Development Traps
- 3. Methodology
- 4. Analysis
Objectives and Key Themes
This paper investigates the viability of a common currency for the African Union, focusing on its potential benefits and drawbacks for sustainable development. It analyzes the economic and monetary implications, considering factors necessary for successful implementation and existing challenges within the diverse African context. The study aims to assess the feasibility of the plan and highlight potential problems.
- The advantages and disadvantages of a common currency for the African Union.
- The role of a common currency in fostering economic growth and sustainable development.
- The theoretical frameworks of optimum currency areas, economic shocks, and spillover effects.
- Analysis of economic data related to inflation, GNI per capita, and trade patterns.
- The impact of development traps on the successful implementation of a common currency.
Chapter Summaries
1. Introduction: This introductory chapter establishes the central research question: Is a common currency beneficial for the African Union? It provides background information on the African Monetary Union, the Abuja Treaty (signed in 1991), and the ongoing debate surrounding the implementation of a single currency. The chapter contrasts the treaty's ambition of a single currency by 2020 with the current reality of diverse national monetary policies and existing regional currency unions. It highlights the potential for a stable economic environment to foster development, contextualizing the research within broader discussions of globalization and its uneven impact on African nations. The chapter concludes by defining the research problem and outlining the key factors that will be assessed in the subsequent analysis.
2. Theory: This chapter delves into the theoretical underpinnings of currency unions, exploring key concepts such as the Optimum Currency Area (OCA) theory. It examines the potential impact of economic shocks, spillover effects (how economic problems spread across borders within a currency union), and the mechanisms of currency adjustments in response to economic performance variations. The chapter also investigates the role of development traps – persistent challenges hindering economic progress – in the context of a potential common currency for the African Union. These theories provide a framework for analyzing the practical feasibility and potential risks associated with a pan-African currency.
3. Methodology: This chapter (briefly mentioned in the summary) would detail the research methods employed in the study. This section would discuss the data sources used (e.g., IMF, World Bank, UNECA), the specific economic indicators analyzed (e.g., inflation rates, GNI per capita, trade patterns), and the analytical techniques applied to assess the impact of a common currency on the African Union's economies.
Keywords
African Union, common currency, economic development, sustainable development, optimum currency area, economic shocks, spillover effects, inflation, GNI per capita, intra-African trade, development traps, Abuja Treaty, monetary union.
Frequently Asked Questions: A Comprehensive Language Preview
What is the main topic of this language preview?
This preview summarizes a research paper investigating the viability of a common currency for the African Union. It explores the potential benefits and drawbacks for sustainable development, considering economic and monetary implications within the diverse African context.
What are the key themes explored in the paper?
The paper analyzes the advantages and disadvantages of a common currency for the African Union, its role in fostering economic growth and sustainable development, relevant theoretical frameworks (optimum currency areas, economic shocks, spillover effects), economic data (inflation, GNI per capita, trade patterns), and the impact of development traps on implementation.
What does the Table of Contents reveal about the paper's structure?
The paper is structured into four main sections: an introduction establishing the research question and background, a theoretical section exploring relevant economic concepts, a methodology section detailing the research approach, and an analysis section presenting the findings. The introduction further breaks down into subsections detailing the theme, problem definition, background knowledge (advantages and disadvantages of currency unions), and the relationship between currency unions and development. The theory section explores optimum currency areas, economic shocks, spillover effects, currency adjustments, and development traps.
What are the chapter summaries?
The introduction establishes the central research question concerning the benefits of a common currency for the African Union, providing background on the African Monetary Union, the Abuja Treaty, and the ongoing debate. The theory chapter delves into the theoretical underpinnings of currency unions, focusing on optimum currency areas, economic shocks, spillover effects, currency adjustments, and development traps. The methodology chapter (briefly mentioned) would detail the research methods, data sources, and analytical techniques used. The analysis chapter (not summarized) would present the findings of the study.
What keywords are associated with this research paper?
Keywords include: African Union, common currency, economic development, sustainable development, optimum currency area, economic shocks, spillover effects, inflation, GNI per capita, intra-African trade, development traps, Abuja Treaty, and monetary union.
What is the overall objective of the research?
The research aims to assess the feasibility of a common currency for the African Union, highlighting potential benefits and problems, and analyzing its potential impact on sustainable development.
What specific economic indicators are likely analyzed in the paper?
The paper likely analyzes economic indicators such as inflation rates, Gross National Income (GNI) per capita, and intra-African trade patterns.
What theoretical frameworks are used in the paper?
The paper utilizes theoretical frameworks such as Optimum Currency Area (OCA) theory, focusing on economic shocks and spillover effects within a currency union.
What is the significance of the Abuja Treaty in this context?
The Abuja Treaty, signed in 1991, is mentioned as a significant element in the background of the ongoing debate surrounding the implementation of a single currency for the African Union. The paper likely contrasts the treaty's ambition with the current reality.
What is the role of "development traps" in the research?
The research investigates how persistent challenges hindering economic progress ("development traps") could affect the success of a common currency for the African Union.
- Quote paper
- Katharina Osterholt (Author), 2011, Is it beneficial for the African Union to introduce a Common Currency?, Munich, GRIN Verlag, https://www.grin.com/document/193726
