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SADC Monetary
Union
Presentation to
PCOF
11September
2007
Introduction
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The Theory of Monetary Integration
Definitions (2) :
Nana-Sink-am (1978) Monetary integration
is the monetary unification of participating
countries in an economic union which
involves the adoption of:
- common currency
- harmonised fiscal and monetary policies
- co-ordinated exchange rate policies.
Corden(1992)
 Monetary integration is process that can be
envisaged during the final stages of
economic integration and it involves :
(1) An Exchange Rate Union – an area within
which exchange rates bear a permanently
fixed relationship to each other. Even though
the rates may in unison vary relative to other
non union currencies
(2) Convertibility - The permanent absence of
all exchange controls, whether for current or
capital transactions within the area.

Monetary union eventually entails:
- Adoption of fixed exchange rate margins
among the members
- Common Currency
- Pooling of Foreign Exchange Reserves
- Harmonised Fiscal and Monetary policies
- Factor Mobility e.g. labour and capital
- Common Central Bank
This experience has been observed in the EU
and The West African Monetary zone where
Euro and ECB and the CFA and BCEAO exist.
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Background

1980 - Organisation of African Union (OAU)
adopted the Lagos Plan of Action which
culminated in signing of the Abuja Treaty to
promote closer economic relations

1999 - African Union (AU) was established to
further advance to the objectives specified in the
Abuja Treaty

Regional Economic Communities (RECs) were
formed to become building blocks for continental
integration

New Partnership for Africa's
(NEPAD) designated RECs as
agencies for its programme
Development
implementing
Regional Indicative Strategic
Development Plan (RISDP)

Economic integration within SADC is driven
by the RISDP which provides a clear
direction
for
SADC
policies
and
programmes

Implementing programmes on achieving:
• Free Trade Area - 2008
• SADC Customs Union - 2010
• SADC Common Market – 2015
• SADC Monetary Union – 2016 (thus a
SADC Central Bank)
RISDP Macroeconomic
convergence targets
Inflation rate
2008
2012
2018
Single digit
5%
3%
Ratio of budget
deficit to GDP
Not exceeding
5%
3% as an
anchor within a
band of 1%
3% as an
anchor within a
band of 1%
Nominal Value of
public & publicly
guaranteed debt
Less than
60% of GDP
Less than
60% of GDP
Less than
60% of GDP
External reserves / 3 months
import cover
More than 6
months
Sustained
Central Bank
credit to
Government
Less than 5%
by 2015
Sustained
Less than 10%
of previous
year’s tax
revenue
Macroeconomic convergence

Member States agreed to achieve
maintain macroeconomic stability
and

Member States should converge on stabilityoriented economic policies which, among
other, includes:
• Restricting inflation to low and stable
levels

Memoranda of Understanding (MoUs) lays
the foundation for the formation of a
monetary union in the region
Committee of Central Bank Governors
(CCBG)

CCBG established in August 1995

Deals with the development of well-managed
financial
institutions
and
markets,
and
co-operation regarding international and regional
financial relations

Various projects, among others:
̶ Development of national payment, clearing
and settlement systems for SADC countries
̶ Legal and operational frameworks of SADC
central banks – preparation of draft Model
Central Bank legislation (to be finalised 2006)
Annexes

ANNEXES include:
• Co-operation in the Area of Information and
Communication Technology
• Payment, Clearing and Settlement Systems
• Co-operation and Co-ordination of Exchange
Control Policies
• Co-operation among Member Stock Exchanges
• Harmonisation of Legal and Operational
Frameworks of SADC Central Banks
• Banking Regulation and Supervision (in
progress)
• Co-operation
among
member
associations (in progress)
banking
Common Monetary Area (CMA)
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CMA is the only sub-regional formation
using a single currency (Rand)
Study – CMA regional central bank
Rand remains a default currency in most
SADC countries
CMA Governors meet 4x per year to
discuss policy strategies and exchange
current economic developments in their
respective countries
Institutional Issues in Monetary Union
Macro Economic Convergence
 - Basis for stable economies in SADC
 - Progress in achieving convergence
- MEC Reports have been completed
Problem:
- Institutional mechanism overseeing reports,
assessing and monitoring progress is
unavailable.
- Process of establishing mechanism is slow
- Lack of commitment from member states
- Cooperation among stake-holders
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Institutional Issues in Monetary Union
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Speedy establishment of the Peer Review
Mechanism is necessary
Guided by principles that ensures equality of
participants
Including the protection of Central Bank
independence
Acceptance of the special role Central banks
play in the economy
Statistical Issues
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While CCBG have made an effort to collect
data and compile publications e.g.
- Recent Economic Developments and the
Integrated paper updated annually
There are still conflicting ideas about the
accuracy of data among stakeholders
Timelines of data is a problem
Lack of cooperation in verifying or supplying
data between stakeholders
Results: Gaps continue in Reports.
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More coordination and cooperation is
required at national level by stakeholders
Statistics Agencies should be involved with
the process of Regional Integration
SADC statistics office should be revived to
oversee and initiate workshops to deal with
statistics challenges
Other Institutional issues
Legal committee
- Draft model bill has been concluded will be finalized by
April 2008
It set out the environment under which a regional
central bank will operate
- Next is the development of a road map towards
Monetary union
- In which a decision on whether other institutions will
be identified which will undertake further work
towards a monetary union
These could include the establishment of a SADC
Monetary Institute which will carry on with the
preparatory work
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-
Payment, clearing and settlement
committee
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There are 10 countries on RTGS and
hopefully the rest will adopt the system which
could eventually be linked into a regional
systems which can allow for cross border
payments.
Problem: some countries are slow in
modernizing their systems – financial
Banking Supervision

Discussions still have to happen on whether
this function will remain with central banks or
an independent regional body will be
established.
Conclusions
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Earnest discussions should begin on the
road map towards the realization of a
monetary union at summit level
Peer review mechanism could be the body
that will decide conditions for entry into
Monetary union and reporting into Summit
Consideration should be given of existing
institutions e.g. CMA and SACU as building
blocks
Conclusions
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Thanks