Advancing economic integration: the case for a single currency

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NOW that William Ruto is President of Kenya, he is using his position to challenge the system whereby African countries are forced to use foreign currency when trading with each other. During the 22nd Common Market for Eastern and Southern Africa (COMESA) Heads of State and Government Summit in Lusaka, Zambia in June Ruto called for the introduction of a single currency across the entire African continent aimed at strengthening trade and regional integration.

“If we are selling from Kenya to Djibouti, we have to look for US dollars. How is the dollar part of the trade between Djibouti and Kenya? Today we are saying the African Export-Import Bank

[Afreximbank] has given us a mechanism where traders in our continent can trade in their goods and services and the bank will settle payments in local currency. That is why Kenya champions the Pan African Payments and Settlement Systems that are done by our own institution the Afreximbank.”

Ruto added: “Why is it necessary for us to buy things from Djibouti and pay in dollars? There’s no reason. We are not against the US dollar; we just want to trade much more freely. Let us pay with the dollar [for] what we are buying from the US. Let us pay with our currency [for] what we are buying from Djibouti.”

While Ruto’s call for a single African currency may be altruistic, others offer more pragmatic views on currency policy. Some economic analysts see the need for an alternative to the US dollar due to the increasing weaponisation of the currency.

According to the International Monetary Fund’s (IMF) executive director for Russia, Aleksei Mozhin, the West’s decision to lock out certain countries from the global payments system is forcing many nations to look for a substitute currency. Speaking to the Russian news outlet, Sputnik, in June, he highlighted how the US and its allies have used economic and financial sanctions to penalise Russia for its war in Ukraine.

In March 2022, the West imposed foreign sanctions that froze about $300 billion worth of Russian reserves. The sanctions also cut off Russian banks from SWIFT, a cross-border payment system dominated by the dollar and the euro.

Mozhin believes that the use of sanctions as a stick to punish Russia is leading to a more divided global economy. As he explains to Sputnik: “The blatant use by the West as a weapon of international trade, finance, as well as the dollar and the euro itself, makes the fragmentation of the world economy not only inevitable, but also irreversible.”

He sees the weaponisation of the dollar as the main reason why there is a push by a number of nations to bypass the American currency when settling international trade dals. “The Americans themselves have created a situation where the search for alternatives to the dollar has inevitably started. And now we see how it’s happening…We see that Iranians, Brazilians, and Saudis are already switching to trade in yuan not only with China, but also with third-party countries.”

Indeed, in May, reports surfaced that China had inked deals with dozens of countries to settle $582.3 billion worth of global trades in yuan in an effort to

Area Agreement (AfCFTA) paves the way for a single currency, the majority of participants acknowledge its potential positive impact on economic development, improved price transparency and reduced inflation. An African single currency has always been on the cards. The Abuja Treaty of 1991 called for, among other things, an African Monetary Union (AMU) that aims to have a single currency in place under the aegis of the African Central Bank by 2028.

A single currency would eliminate exchange rate volatility, facilitate cross-border trade and foster economic cooperation, leading to increased investment, job creation, and economic growth across the continent. A common currency would also reduce transaction costs, eliminate exchange rate risks and reduce financial risks, making trade and investment easier within Africa.

The reduced barriers to crossborder trade and investment are likely to encourage more small and mediumsized companies, previously limited to domestic markets, to enter neighbouring markets, fostering increased competition and resource allocation within Africa. It would also create a larger market for African businesses, creating and enhancing competitiveness on the global stage.

Africa's abundance of natural resources