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The Euro Is Not Unique as a Currency Union Among Many Countries 

Despite widespread pessimism about the Euro, single currency arrangements have been successfully managed in other parts of the world. In the following article, Tom Cleveland of forextraders.com retraces the history of one of such currencies, the Central African CFA Franc.

CameroonPostline.com — As the European debt crisis heads deeper into its third year of being, many articles have been written as to the efficacy of a single currency unit arrangement between competing sovereigns in this modern age of globalization.  Over the course of this debate, the general public has been led to believe that the Euro is in some way unique, a grand experiment of the new millennium, attempting to take mankind where no one has ever gone before.  Despite this politicized rhetoric, the reality is that there are many such single currency arrangements across the globe that have delivered on their economic objectives, well before Europeans opted out of their native coins of the realm.

Many of these arrangements have their origins in historical trade routes or colonial development activities that followed the “Age of Discovery” when Spanish, Portuguese, British, Dutch, German, and French interests sought financial gain through trade with peripheral territories.  One example is the Organisation of Eastern Caribbean States (“OECS”), comprised of nine independent nations in that region.  Eight of these member states formed the Eastern Caribbean Currency Union in 1965 and have operated with a common currency, the East Caribbean Dollar (sign: “EC$”; code: “XCD”).

There are also two prominent single currency arrangements on the African continent, as depicted on the following diagram:

Early economic developments in Africa occurred where ports enabled trade with sea-going merchants.  Silver coins from various European nations replaced barter along the coastline, but initiatives into the rich central region required railroads, often built on the backs of cheap Indian laborers.  The Rupiah replaced Florins, but when the British Empire exerted its influence over India, Shillings were soon predominating.  Western and central Africa, however, were more the province of France, long after the early Portuguese explorers had ventured inward up natural rivers.

Cameroon actually derives its name from “Camaroes”, a Portuguese word for “shrimps”, found in ample abundance in its rivers at the time of early discovery.  Germans colonized the area in 1884, but soon lost its hold after World War I when France laid its claims through the early League of Nations.  The French Equatorial Franc eventually gave way to the “CFA” Franc, which survived after independence was granted after 1960.

Twelve of the fourteen countries presented above were originally French colonies that agreed to form a union behind the “CFA” Franc and the French government in 1948, following World War II.  Although there exist two separate arrangements with two distinct ISO currency designations, the “XOF” and the “XAF” are traded at par, and both are “pegged”, originally to the French Franc and now to the Euro through contract with the French Treasury.  Cameroon is actually one of six members of “CEMAC” (Communauté Économique et Monétaire de l’Afrique Centrale). 

Some economists may argue that “pegged” or “dual” currency arrangements have been around for many decades.  They are nothing new, but the ones that last are the ones that allow for price stability, purchasing power parity, and for regulating the ravages of inflation that can persist in emerging economies, especially in Africa.  Both central African arrangements have achieved these desired results, thanks in part to each central banking institution located in Cameroon and Senegal, respectively.

The African continent is rich in natural resources, minerals, and oil deposits, but these assets cannot be monetized without large amounts of foreign investment and local infrastructure.  As judicial institutions institute more dependable “rules of law”, and the presence of civil strife and debilitating corruption subsides, the potential for widespread prosperity will become a possibility.  A stable currency arrangement is the first step.

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