Banking Union, Fiscal Union and Political Union as Pathways to Complete and Sustainable Monetary Integration of Africa

Following the monetary integration trends in Europe, there had been the desire for the African Monetary Union and the creation of a unified currency for the African continent. This proposed African common currency would be known as ‘afro’, a single currency for Africa by 2028. The continent of Africa, characterised by the largest number of countries and the largest number of currencies has consequently embarked on a special project for an African monetary integration. The 1991 Abuja treaty set out six stages in the process of achieving a monetary union and a single currency for Africa. This strategy for African monetary integration is based on progressive economic and monetary integration of African economic communities which are regarded as building blocks of Africa. These economic communities are the East African Community (EAC), the Southern African Development Community (SADC) and the Economic Community of the West African States (ECOWAS). Evidences generated from the analyses of the formation of the European Monetary Union (EMU) prompted many conclusions that there were major defects in its establishment as exposed by the Eurozone crisis. Some of these identified optimum currency area (OCA) related design flaws of the Eurozone are: (i) the absence of effective economic governance mechanism; (ii) the retention of banking supervision and resolution at national levels; (iii) the lack of financial back-stops and crisis resolution mechanisms at the union level; and (iv) defects in the design of the Eurozone's common central bank. Clearly, the Eurozone crisis has obviously revealed that banking union and integrated financial market, fiscal union and integrated fiscal framework and political union are all required in a monetary union, for completeness and sustainability. Unfortunately, these are issues not addressed by the OCA theory. From view-points in various debates on the sustainability and completeness of the EMU as well as various revealed faults in the design of Eurozone and the defects inherent in the original optimum currency area (OCA) theory and its application to monetary integration, this paper consequently discusses and highlights banking union, fiscal union and political union as pathways to complete and sustainable monetary integration in Africa.