A Diagnostic on the West African Monetary Union

Abstract

Deploying the classical optimum currency areas (OCA) theory and recent developments in the monetary literature, this paper evaluates the appropriateness of West African Monetary Union (WAEMU) as a monetary zone. Nine macroeconomic dimensions are investigated under which the first four items are quantified against a reference economy, namely the United States, the eurozone or China, while the rest are measured in absolute terms for time periods before and after the 2008‐2009 global financial crisis. Results could signify relative dominance of the three world's largest economies to the West African region. In addition to inherent asymmetries across the union, findings suggest the emerging Chinese yuan as an alternative to the euro as the monetary anchor.

Germany versus the United States: Monetary Dominance in the Eurozone

“…In accordance with Quah and Crowley (2010 [10], 2012 [11]) and Quah (2012 [12-14], 2013 [15], 2014 [16][17][18], 2015 [19]) the OCA criteria investigated in this paper are trade openness, business cycle synchronization, real exchange rate variability, inflation convergence, and real interest rate symmetry. Similar metrics have been used by Artis and Zhang (2001 [20], 2002 [21]), of which the efficacy of the criteria was evidenced when Portugal, Italy, Greece, and Spain were selected as the group that possesses the least parallel OCA features against Germany.…”

Exchange Rate Fixation between US, China, Japan and Eurozone

“…Following Quah (2012a, 2012b, 2013a, 2013b, 2014a, 2014b, 2015, 2016b), and Quah and Crowley (2010, 2012a, 2012b), the OCA-related criteria investigated in this article are trade openness, business cycle synchronisation, real exchange rate variability and inflation convergence and real interest rate symmetry. Interestingly, the efficacy of the criteria in the European context was confirmed when Artis and Zhang (2001, 2002) distinguished Portugal, Italy, Greece and Spain as member states which possess the least conforming OCA features against Germany.…”

A Literature Survey on Proposed African Monetary Unions

“…As we have observed from Ekpoh and Udoh (), some lines of inquiry are more focused on providing requirements needed for the transition to a common monetary union, as opposed to directly engaging in the debate on whether a currency union is feasible or not. This is the case with Quah () who has evaluated the appropriateness of WAEMU forming a currency zone by concluding that, of the world's three largest economies dominating in the region, the emerging Chinese yuan is preferable to the euro as peg or monetary anchor.…”