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Can West African Monetary Zone Form a Currency Union?

A. A. Obalade (University of the Western Cape, South Africa)
T. Moodley (University of KwaZulu-Natal, South Africa)
N. Ncama (University of KwaZulu-Natal, South Africa)
N. Mkhize (University of KwaZulu-Natal, South Africa)
M. Pillay (University of KwaZulu-Natal, South Africa)
T. Singh (University of KwaZulu Natal, South Africa)

Comparative Analysis of Trade and Finance in Emerging Economies

ISBN: 978-1-80455-759-4, eISBN: 978-1-80455-758-7

Publication date: 10 April 2023

Abstract

The establishment of a currency union is a topical issue in the West African Monetary Zone (WAMZ). The subject of currency union formation needs to be reassessed in light of the recent efforts towards the economic integration of west African countries. This study employs the Markov Switching Model (MSM) to determine whether a currency union in WAMZ is feasible. The study analyzes the regime switching behavior in WAMZ countries’ foreign exchange markets before and after the formation of the union. The contribution of this study is two-fold. First, the study accounts for the success or otherwise of the latest efforts to integrate the fiscal and monetary strategies in the zone. Secondly, the study contributes to the literature on the currency union literature in WAMZ by using Markov Switching Model (MSM) to generate novel results. The results of the study revealed that prior to the WAMZ formation, the real exchange rates of member states were more divergent. In contrast, a growing but marginal, convergence was observed after the formation of the zone amongst four (Nigeria, Sierra Leone, Gambia, and Liberia) of the six countries. The authors conclude that while WAMZ is on course for establishing a currency union, their monetary authorities must work together, particularly with Ghana and Liberia, to synchronize their policy efforts, and policy makers must implement policies to strengthen harmonious trade interactions.

Keywords

Citation

Obalade, A.A., Moodley, T., Ncama, N., Mkhize, N., Pillay, M. and Singh, T. (2023), "Can West African Monetary Zone Form a Currency Union?", Barnett, W.A. and Sergi, B.S. (Ed.) Comparative Analysis of Trade and Finance in Emerging Economies (International Symposia in Economic Theory and Econometrics, Vol. 31), Emerald Publishing Limited, Leeds, pp. 19-35. https://doi.org/10.1108/S1571-038620230000031003

Publisher

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Emerald Publishing Limited

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