Optimal Currency Areas Theory and Evidence for an African Single Currency

Monetary integration, to varying degrees has become an increasingly important phenomenon within the modern global economic era. Africa has been planning economic, political and monetary union since 1963, partly as a means towards social integration. This study focuses on the economic elements of monetary union, placing it firmly within the context of the theory of optimal currency areas and with special reference to Africa. An assessment of theoretical and applied empirical literature is discussed. This encompasses a discussion of traditional optimal currency area theory as initiated by Mundell (1961) and McKinnon (1963) as well as further developments in the so called ‘Modern ’ theory. It is found that there is a wide range of methodological tools with which to apply the theory though it was seen that most of these were understandably with regards to the European Union. This literature review, along with data and time limitations informed the empirical methodology applied in this study. The empirical gaps, suggested by the literature were two fold: firstly the assignment of countries to a streamlined arrangement o