Alternatives to Expedite Macroeconomic Convergence of the SADC Countries

Abstract

Countries comprising of the Southern African Development Community (SADC) region show satisfactory progress with the achievement of the region’s macroeconomic convergence goals. Five countries achieved all four goals set for 2008 already in 2006; five achieved three of the goals and the other four achieved two goals. In addition, countries in the SADC region have achieved their target for the establishment of a free trade area. The achievement of these goals supports SADC’s ultimate objective of establishing a regional central bank with a single regional currency by 2016. Since 1857, European experiences with monetary unions have shown that unification can at best be regarded as a challenging prospect for any region. Judged in terms of the European experience, SADC does not face insurmountable challenges in its quest for monetary unification and a single central bank. However, governments of countries in the SADC region should consider whether a regional central bank should follow discretionary monetary policy catering for particular economic shocks, or monetary policy based on rules using a monetary policy anchor. Neither approach leaves easy choices, as governments of SADC countries would have to establish a structure to consider and select a monetary policy framework. At a microeconomic level, the benefits of establishing a regional central bank and adopting a single regional currency are to free private enterprises, business firms and individuals from transaction costs in intraregional trade and travel. It will also increase price transparency and competition between countries and stabilize consumer prices in countries suffering prolonged inflation due to sustained exchange rate depreciation. Four initiatives can enhance SADC’s progress. First, the macroeconomic convergence criteria should be clarified and the timely publication of macroecoInt Adv Econ Res (2008) 14:479–480 DOI 10.1007/s11294-008-9183-6