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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 deb

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
I'm not sure that's a big difference. I doubt investors were very keen to hold Greek drachma debt in a similar way that they aren't keen on weak African currencies.
- dalbasal 7y ago
  They were borderline... in that Drachma denominated bonds generally carried slightly higher interest rates, but in practice a good portion of national debt was in Drachma. Salaries were certainly Drachma denominated. It may not have been USD, but it was a lot stronger than many/most African currencies. Besides all the complex economic reasons, Africa just has a lot of very small countries/economies. That makes it hard for them to operate in local currencies and most debt (also salaries, real estate) effectively or explicitly get denominated in foreign currencies anyway. A European equivalent might be Montenegro of Kosovo, but there are 20-30 African countries in that position. Some are reasonably wealthy/developed, but small. Some are very low GDP per capita. Some are both.

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

I'm not sure that's a big difference. I doubt investors were very keen to hold Greek drachma debt in a similar way that they aren't keen on weak African currencies.

dalbasal 7y ago
They were borderline... in that Drachma denominated bonds generally carried slightly higher interest rates, but in practice a good portion of national debt was in Drachma. Salaries were certainly Drachma denominated. It may not have been USD, but it was a lot stronger than many/most African currencies. Besides all the complex economic reasons, Africa just has a lot of very small countries/economies. That makes it hard for them to operate in local currencies and most debt (also salaries, real estate) effectively or explicitly get denominated in foreign currencies anyway. A European equivalent might be Montenegro of Kosovo, but there are 20-30 African countries in that position. Some are reasonably wealthy/developed, but small. Some are very low GDP per capita. Some are both.