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Hope this helps Africa develop its economy in a way that's positive for the people that live there, all of them. Not sold on the idea of a single currency, that

Hope this helps Africa develop its economy in a way that's positive for the people that live there, all of them. Not sold on the idea of a single currency, that hasn't worked so hot for Europe, especially the weaker economies like the mediterranean countries. Aren't they repeating the same mistake Paul Krugman refers to as "original sin of monetary policy"? https://krugman.blogs.nytimes.com/2011/11/10/original-sin-and-the-euro-crisis https://krugman.blogs.nytimes.com/2011/11/10/original-sin-an...

blueblimp 7y ago
My first reaction was similar. Why imitate the Euro when that experiment has gone badly?
- hydrox24 7y ago
  > Why imitate the Euro when that experiment has gone badly? Because the Euro solved a problem that did not exist in the EU. Every nation that joined was able to convert their currency to other EU currencies at reasonably low cost, and because each currency was relatively stable, at a low risk too. Africans do actually have high currency conversion costs, and some of the currencies are risky. To put it in Krugman's terms, the African nations have mostly committed the 'original sin' anyway, and this is a way of making a bad situation better. Italy was free of the original sin and was making a good situation worse by joining the EU.
  - pgeorgi 7y ago
    > Italy was free of the original sin and was making a good situation worse by joining the EU. "co-founding the EU" (but nevermind: EU and Eurozone aren't the same)
- vnorilo 7y ago
  Well, as an individual eurozoner I vastly prefer a single currency and for me personally it certainly reduces the friction of cross-border trade (I both buy stuff and sell services). I understand that many eurozone countries could be helped by currency tools like devaluing, but I'm not sure if anyone can really know how the tradeoffs vs. smoother commerce pan out and conclude authoritatively that the whole thing is a net negative.
  - petre 7y ago
    I also buy stuff and services frictionlessly being outside of the EZ. Why trade away your country's monetary sovereignity for the convenience of currency exchange? We all know what happened to Greece and to the Italian economy.
    - vnorilo 7y ago
      Maybe the businesses in your country improve their conversion rates ever so slightly because of said convenience? We spend time and money to optimize for far sillier things in our funnels. I do not claim to know the aggregate effects, but I would guess it is not as simple as convenience vs. sovereignity.
      - petre 7y ago
        Not really. Visa and the banks do take a cut. But there is Revolut now if you want to give them the middle finger. They will be forced to adapt and offer similar services or at least non-ripoff exchange rates. I always prefer a free market solution to an EU buceaucratic solution. Such as EU mandated zero transaction fees in order to convert the bulk of the transactions to cashless, be able to track them and "prevent money laundering", which of course isn't true (eg. Danske bank scandal).
    - goodcanadian 7y ago
      The Greece and Italian economies were mismanaged. The Euro, in and of itself, had little to do with it. At worst, it removed one tool for dealing with the mismanagement. Far better to manage it well in the first place.
      - petre 7y ago
        Greece maybe. But if Italy's economy was mismanaged it was due to outside pressure. https://www.ineteconomics.org/perspectives/blog/how-to-ruin-a-country-in-three-decades https://www.ineteconomics.org/perspectives/blog/how-to-ruin-... https://news.ycombinator.com/item?id=19649182 https://news.ycombinator.com/item?id=19649182
- seer 7y ago
  I would call the euro a smashing success to be honest. Small countries, especially the ones that came out of the old ussr, seem to be very susceptible to their leaders playing with the currency to further their immediate goals, to the detriment of long term prosperity. Namely they like to print money. Countries that pegged their currency to the euro, or outright started using it got measurably better than the one that didn’t. Counties that had “troubles because of the euro” would have most definitely had them even without, but the problem would have surfaced much later, when the damage would have been done. It’s just so easy to solve economy problems with devaluing a currency and most, especially populist governments just can’t help themselves but do it, ending in huge nation wide catastrophes - see a lot of latin america, pre-euro ex-ussr countries etc. Having a stable currency is just vital to the long term health of a country, and the euro has certainly helped with that immensely. It does remove a tool from a government’s toolbox, but a dangerous one that I wouldn’t trust most of them to use anyway. As for Africa, with the amount of financial education the populace has at large, I would presume a stable currency would do wonders to their economies long term, at least for several generations ahead. A bit oversimplified but very accessible source of info for geopolitical economic stuff like this would be VisualPolitik youtube channel.
  - TomMarius 7y ago
    The Czech Republic (the fastest growing EU economy) wouldn't be as successful had it accepted Euro.
    - patrickmcnamara 7y ago
      Ireland has technically been the fastest growing economy in the EU for the past several years and it uses the Euro. GDP is an iffy measure for Ireland though.
    - seer 7y ago
      Perhaps, its all a trade off. Maybe you lucked out with your governments. Having your own currency is a tool that _can_ be used wisely to great effect. It’s just that the modern world is filled with examples of the opposite. And it has been just a couple of decades. Over the long run, stable currencies usually outperform their capricious rivals. Mostly because investors want stability, and so they flock to places where it is present. There are numerous examples of countries with their own currency doing well, or doing very very poorly. But there are few examples of countries doing very badly _because_ they adopted a union currency. Imagine Alabama stating they’ll quit the US dollar and get their own alabamians or something - it might go great, it might go badly, but you sure know it would be risky. And investors by and large wouldn’t like that.
lopmotr 7y ago
It's much worse for Africa than the EU. Here are the ratios of GDP per capita of the highest to lowest states in each region, excluding outliers DC and Luxembourg: US: 2:1 (Massachusetts $66,000 : Mississippi: $32,000) Eurozone: 4:1 (Ireland $71,000 : Latvia $16,000) Africa (PPP): 50:1 (Equatorial Guinea $35,000 : Central African Republic $700) CAR isn't even an outlier. There are several African countries with less than $1000 GDP(PPP) per capita and several with over $10,000. So it's much more diverse than the Eurozone.
- antupis 7y ago
  But Equatorial Guinea is an outlier.
- runarberg 7y ago
  According to wikipedia Guam has a GDP per capita of $30,500 and American Samoa has an even lower GDP per capita of $13,000 so 5:1 is closer to reality for the US. That said. The US is not the only country to oficially use the US dollar. Among others, Ecuador has a GDP per capita of just under $12,000 and uses the US dollar, Palau $16,000, East Timor $5,500, and lowest are Marshall Islands and Micronesia both with GDP per capita under $4,000 bringing the ratio closer to 1:18. Also there are plenty of counties with even lower GDP that uses the dollar unofficially, so I don’t see a problem with a high GDP per capita ratio. Edit: Equatorial Guinea is also an outlier with high GDP and low population. We could arbitrarily decide to include San Francisco in the US example with a GDP per person of over $100,000 bringing the US ratio up to 1:7 and the US dollar ratio to 1:25
  - guaka 7y ago
    It's not as if most people are rich in Equatorial Guinea. It's an appalling outlier in terms of inequality, even on such an unequal continent as Africa. "Only about half of the country’s population has access to clean drinking water, overcrowded living condition is—surprisingly given the country’s low population density—rampant and very few children enjoy the advantages of urban life such as education, medical services and recreational facilities." https://borgenproject.org/equatorial-guinea-poverty/ https://borgenproject.org/equatorial-guinea-poverty/ I tried to find data about GINI for the country but the World Bank and the UN don't have anything. http://hdr.undp.org/en/content/income-gini-coefficient http://hdr.undp.org/en/content/income-gini-coefficient
dalbasal 7y ago
One (arguable) difference is that the weaker African economies can't really borrow in their own currencies and therefore can't inflate currency to deal with debt burden. Thats what Greece couldn't do, because of the euro. Previously, their debt would ha e been in local currency. In times of debt crises the value of the currency would have (even without explicit government action) declined (inflation). This makes the debts smaller, both formal national debts and private debts. It also (this get more Keynesian & controversial) creates a way to lower sticky prices (especially salaries). Say you charge £100 per month for software and inflation eats 25% of this, the contract is still for £100. It is also tricky to "raise" prices while the economy is in trouble and people/businesses are cutting costs. The biggest place where this applies is salaries. Inflation cuts salaries, which in practical terms is near impossible to do otherwise. But, if local currency is very weak, debt tends to be denominated in foreign currency anyway... even salaries. The only prices denominated in local currency are flexible anyway (eg carrots at the market).
- repolfx 7y ago
  They can inflate their currencies just by printing more of it. Currently that sort of quantitive easing is restricted to the specific country that does it. A future African Union would make the EU look like a pillar of stability in comparison - stronger countries like Kenya, South Africa would want more stable lower inflation currencies and basket cases would want to run the mint at full speed.
  - dalbasal 7y ago
    Yup, but in all cases the currency will be responsive to the aggregate economy, not the local economy. I'm not very knowledgeable about African economics, but that said, I think that the downsides to a common currency experienced by Greece will be a much smaller issue in Africa, because stability is more important than monetary policy tools and "natural" inflation during debt crisis. The monetary solutions (market and/or policy solutions) just aren't available to most of the smaller African economies anyway. OTOH, currency stability is a problem and common currency generally helps with this.
- tim333 7y ago
Balgair 7y ago
Like everything else, it's complicated. Africa is even more diverse than the EU in terms of languages, cultures, size, climates, and histories. So, you'd think that a single currency union would then be even more difficult to pull off. However, Africa is set to grow by 3 Billion people (~300%) in the next 80 years or so, and their standard of living is set to be on par with ~2005 Europe as well. Africa has also had a series of very brutal wars in the past few decades that have devastated the countries and their peoples. As other commentors have pointed out, though Europe has had a lot of troubles with their economies with the Euro, they have thus far avoided wars like the ones we saw less than 80 years ago. If currency unions help avoid wars like the few we've seen in the Congo (sometimes termed the African World Wars with 2.7 to 5.4 million deaths) then I'd think all the countries would be very much for such a union. Setting up a good system right now is not unwise.

blueblimp 7y ago

My first reaction was similar. Why imitate the Euro when that experiment has gone badly?

hydrox24 7y ago
> Why imitate the Euro when that experiment has gone badly? Because the Euro solved a problem that did not exist in the EU. Every nation that joined was able to convert their currency to other EU currencies at reasonably low cost, and because each currency was relatively stable, at a low risk too. Africans do actually have high currency conversion costs, and some of the currencies are risky. To put it in Krugman's terms, the African nations have mostly committed the 'original sin' anyway, and this is a way of making a bad situation better. Italy was free of the original sin and was making a good situation worse by joining the EU.
- pgeorgi 7y ago
  > Italy was free of the original sin and was making a good situation worse by joining the EU. "co-founding the EU" (but nevermind: EU and Eurozone aren't the same)
vnorilo 7y ago
Well, as an individual eurozoner I vastly prefer a single currency and for me personally it certainly reduces the friction of cross-border trade (I both buy stuff and sell services). I understand that many eurozone countries could be helped by currency tools like devaluing, but I'm not sure if anyone can really know how the tradeoffs vs. smoother commerce pan out and conclude authoritatively that the whole thing is a net negative.
- petre 7y ago
  I also buy stuff and services frictionlessly being outside of the EZ. Why trade away your country's monetary sovereignity for the convenience of currency exchange? We all know what happened to Greece and to the Italian economy.
  - vnorilo 7y ago
    Maybe the businesses in your country improve their conversion rates ever so slightly because of said convenience? We spend time and money to optimize for far sillier things in our funnels. I do not claim to know the aggregate effects, but I would guess it is not as simple as convenience vs. sovereignity.
    - petre 7y ago
      Not really. Visa and the banks do take a cut. But there is Revolut now if you want to give them the middle finger. They will be forced to adapt and offer similar services or at least non-ripoff exchange rates. I always prefer a free market solution to an EU buceaucratic solution. Such as EU mandated zero transaction fees in order to convert the bulk of the transactions to cashless, be able to track them and "prevent money laundering", which of course isn't true (eg. Danske bank scandal).
  - goodcanadian 7y ago
    The Greece and Italian economies were mismanaged. The Euro, in and of itself, had little to do with it. At worst, it removed one tool for dealing with the mismanagement. Far better to manage it well in the first place.
    - petre 7y ago
      Greece maybe. But if Italy's economy was mismanaged it was due to outside pressure. https://www.ineteconomics.org/perspectives/blog/how-to-ruin-a-country-in-three-decades https://www.ineteconomics.org/perspectives/blog/how-to-ruin-... https://news.ycombinator.com/item?id=19649182 https://news.ycombinator.com/item?id=19649182
seer 7y ago
I would call the euro a smashing success to be honest. Small countries, especially the ones that came out of the old ussr, seem to be very susceptible to their leaders playing with the currency to further their immediate goals, to the detriment of long term prosperity. Namely they like to print money. Countries that pegged their currency to the euro, or outright started using it got measurably better than the one that didn’t. Counties that had “troubles because of the euro” would have most definitely had them even without, but the problem would have surfaced much later, when the damage would have been done. It’s just so easy to solve economy problems with devaluing a currency and most, especially populist governments just can’t help themselves but do it, ending in huge nation wide catastrophes - see a lot of latin america, pre-euro ex-ussr countries etc. Having a stable currency is just vital to the long term health of a country, and the euro has certainly helped with that immensely. It does remove a tool from a government’s toolbox, but a dangerous one that I wouldn’t trust most of them to use anyway. As for Africa, with the amount of financial education the populace has at large, I would presume a stable currency would do wonders to their economies long term, at least for several generations ahead. A bit oversimplified but very accessible source of info for geopolitical economic stuff like this would be VisualPolitik youtube channel.
- TomMarius 7y ago
  The Czech Republic (the fastest growing EU economy) wouldn't be as successful had it accepted Euro.
  - patrickmcnamara 7y ago
    Ireland has technically been the fastest growing economy in the EU for the past several years and it uses the Euro. GDP is an iffy measure for Ireland though.
  - seer 7y ago
    Perhaps, its all a trade off. Maybe you lucked out with your governments. Having your own currency is a tool that _can_ be used wisely to great effect. It’s just that the modern world is filled with examples of the opposite. And it has been just a couple of decades. Over the long run, stable currencies usually outperform their capricious rivals. Mostly because investors want stability, and so they flock to places where it is present. There are numerous examples of countries with their own currency doing well, or doing very very poorly. But there are few examples of countries doing very badly _because_ they adopted a union currency. Imagine Alabama stating they’ll quit the US dollar and get their own alabamians or something - it might go great, it might go badly, but you sure know it would be risky. And investors by and large wouldn’t like that.

lopmotr 7y ago

It's much worse for Africa than the EU. Here are the ratios of GDP per capita of the highest to lowest states in each region, excluding outliers DC and Luxembourg: US: 2:1 (Massachusetts $66,000 : Mississippi: $32,000) Eurozone: 4:1 (Ireland $71,000 : Latvia $16,000) Africa (PPP): 50:1 (Equatorial Guinea $35,000 : Central African Republic $700) CAR isn't even an outlier. There are several African countries with less than $1000 GDP(PPP) per capita and several with over $10,000. So it's much more diverse than the Eurozone.

antupis 7y ago
But Equatorial Guinea is an outlier.
runarberg 7y ago
According to wikipedia Guam has a GDP per capita of $30,500 and American Samoa has an even lower GDP per capita of $13,000 so 5:1 is closer to reality for the US. That said. The US is not the only country to oficially use the US dollar. Among others, Ecuador has a GDP per capita of just under $12,000 and uses the US dollar, Palau $16,000, East Timor $5,500, and lowest are Marshall Islands and Micronesia both with GDP per capita under $4,000 bringing the ratio closer to 1:18. Also there are plenty of counties with even lower GDP that uses the dollar unofficially, so I don’t see a problem with a high GDP per capita ratio. Edit: Equatorial Guinea is also an outlier with high GDP and low population. We could arbitrarily decide to include San Francisco in the US example with a GDP per person of over $100,000 bringing the US ratio up to 1:7 and the US dollar ratio to 1:25
- guaka 7y ago
  It's not as if most people are rich in Equatorial Guinea. It's an appalling outlier in terms of inequality, even on such an unequal continent as Africa. "Only about half of the country’s population has access to clean drinking water, overcrowded living condition is—surprisingly given the country’s low population density—rampant and very few children enjoy the advantages of urban life such as education, medical services and recreational facilities." https://borgenproject.org/equatorial-guinea-poverty/ https://borgenproject.org/equatorial-guinea-poverty/ I tried to find data about GINI for the country but the World Bank and the UN don't have anything. http://hdr.undp.org/en/content/income-gini-coefficient http://hdr.undp.org/en/content/income-gini-coefficient

dalbasal 7y ago

One (arguable) difference is that the weaker African economies can't really borrow in their own currencies and therefore can't inflate currency to deal with debt burden. Thats what Greece couldn't do, because of the euro. Previously, their debt would ha e been in local currency. In times of debt crises the value of the currency would have (even without explicit government action) declined (inflation). This makes the debts smaller, both formal national debts and private debts. It also (this get more Keynesian & controversial) creates a way to lower sticky prices (especially salaries). Say you charge £100 per month for software and inflation eats 25% of this, the contract is still for £100. It is also tricky to "raise" prices while the economy is in trouble and people/businesses are cutting costs. The biggest place where this applies is salaries. Inflation cuts salaries, which in practical terms is near impossible to do otherwise. But, if local currency is very weak, debt tends to be denominated in foreign currency anyway... even salaries. The only prices denominated in local currency are flexible anyway (eg carrots at the market).

repolfx 7y ago
They can inflate their currencies just by printing more of it. Currently that sort of quantitive easing is restricted to the specific country that does it. A future African Union would make the EU look like a pillar of stability in comparison - stronger countries like Kenya, South Africa would want more stable lower inflation currencies and basket cases would want to run the mint at full speed.
- dalbasal 7y ago
  Yup, but in all cases the currency will be responsive to the aggregate economy, not the local economy. I'm not very knowledgeable about African economics, but that said, I think that the downsides to a common currency experienced by Greece will be a much smaller issue in Africa, because stability is more important than monetary policy tools and "natural" inflation during debt crisis. The monetary solutions (market and/or policy solutions) just aren't available to most of the smaller African economies anyway. OTOH, currency stability is a problem and common currency generally helps with this.
tim333 7y ago

Balgair 7y ago

Like everything else, it's complicated. Africa is even more diverse than the EU in terms of languages, cultures, size, climates, and histories. So, you'd think that a single currency union would then be even more difficult to pull off. However, Africa is set to grow by 3 Billion people (~300%) in the next 80 years or so, and their standard of living is set to be on par with ~2005 Europe as well. Africa has also had a series of very brutal wars in the past few decades that have devastated the countries and their peoples. As other commentors have pointed out, though Europe has had a lot of troubles with their economies with the Euro, they have thus far avoided wars like the ones we saw less than 80 years ago. If currency unions help avoid wars like the few we've seen in the Congo (sometimes termed the African World Wars with 2.7 to 5.4 million deaths) then I'd think all the countries would be very much for such a union. Setting up a good system right now is not unwise.