A single currency for Africa will make it much easier to trade and invest across the continent, but because all countries are unlikely to agree on a central bank or monetary policy it will likely have to be a decentralised cryptocurrency.
This is the view of Montegray Capital founder, venture capitalist, and former FNB CEO, Michael Jordaan.
Jordaan said intra-African trade – trade between countries in Africa – and not foreign aid, is the key to sustainable development in Africa.
The United Nations Conference on Trade and Development (UNCTAD) highlighted that Africa is lagging far behind other regions when it comes to intra-continental trade.
Intra-African trade was around 2% during the period 2015 to 2017. America, Asia, and Europe, in comparison, had inter-continental trade of 47%, 61%, and 67% respectively.
Jordaan said this low base meant there was great potential to increase intra-African trade and use it as a growth opportunity.
“The recent African Continental Free Trade Agreement could create significant economic growth – potentially a double-digit growth boost – and materially reduce prices for Africa’s 1.2 billion consumers,” Jordaan said.
The plan behind the free trade agreement is to allow goods and services to flow freely between African countries.
It can make Africa the biggest free trade area in the world with an integrated market GDP of around $3 trillion.
There are, however, many non-tariff barriers like delays at border posts or non-standardised customs procedures which are holding the continent back.
Jordaan said these bottlenecks will have to be resolved to optimise trade between African countries.
Another big challenge for intra-African trade is making it easy for big and small exporters to be paid by anyone in the world.
“Africa is the most under-penetrated payments market in the world. Making payments across Africa should be as fast and inexpensive as making a local payment,” Jordaan said.
“Unfortunately, the fact that the 55 African countries have 41 different currencies means that payments are slow, expensive, and that both importers as well as exporters face exchange rate risk.”
A unified currency and a unified payment system for Africa would bring great benefits to inter-regional trade and investment.
Another benefit of a single, independent central bank is that individual states cannot raid their own central banks by printing money and causing inflation.
It is also likely that the overall real interest rates would be lower given that there would be more market confidence in a single, independent central bank.
This may not happen soon, or even in our lifetime, as many governments may not want to let go of their turf, Jordaan highlighted.
Given that governments may take awfully long to agree to a single African currency, it is possible that a cryptocurrency can serve the purpose of enabling trade across Africa – and the world.
“Cryptocurrency payments are fast and inexpensive. There could be an African or global stablecoin which is not as volatile as say Bitcoin or Ethereum,” said Jordaan.
“I know that for some this seems like a crazy dream, but in 2009, when Bitcoin was created, no one would have believed that cryptocurrencies would reach a market cap of $2.3 trillion.”
Jordaan highlighted that the Euro was only created in 1999 which shows monetary innovations happen all the time.
“Even the rand, born in 1961, is a relatively recent currency,” he said.
Jordaan said he will keep dreaming of an Africa that trades with itself – like Europe and Asia – instead of relying on foreign aid.
“A single African currency would go a long way to make borders matter less,” Jordaan said.