ANALYSIS OF FEASIBILITY OF MONETARY UNION INTHESADCAND EAC: EVIDENCE FROM ANALYSIS OF TRADE OPENNESS

• Main Authors: EphremHabtemichaelRedda, Paul-FrancoisMuzindutsi, Prof.Wynand Grobler
• Format: Article
• Language: English
• Published: Social Sciences Research Society 2017-07-01
• Series: International Journal of Economics and Finance Studies
• Online Access: http://www.sobiad.org/eJOURNALS/journal_IJEF/archieves/IJEF_2017_2/e-habtemichael.pdf

The SADC and EAC are working toward developingmonetary unionsin theirrespective regions in the near future. Trade openness of an economy is a crucialcharacteristic in assessing the feasibility of a monetary union andtheadoption ofa common currency. Trade is usually regarded as the main channel through whichthe benefits from a common currency are enjoyed by member countries. Thepurpose of this paperisto analyse the feasibilityof a monetary union in theSADC andtheEAC through the analysis of trade openness within the twoeconomic regions. Descriptive and comparative analysesareemployed to achievethe outcomes of the study.Results showthat,ingeneral,most of the SADCmember countries are open to external trade, meeting the requirement of theoptimum currency area (OCA) theory in this regard.This may mean that theystand to benefit from adopting a common currency in as far as trade openness isconcerned. However, the low intra-regionaltrade is expected to limit suchbenefitsbecause most of the transactions are made with the rest of the world,using foreign currencies such as the US dollar and the euro.While the countries inthe EAC region have shown some progress in openingtheir economies in the last30 years, results showthat none of them has attained the required criterion.Ourfindings suggestthat the countries in the EAC region may not stand to benefitfrom adopting a common currency.Both economic regions need to significantly increase their intra-regionaltrade before the implementationofthe envisagedmonetary union.