AN INVESTIGATION OF THE FEASIBILITY OF A MONETARY UNION IN THE SADC

Abstract

The overriding objective of this study is to assess the readiness of SADC member countries for the proposed monetary unification. The study applies the diverse theory of optimal currency areas placing it firmly within the context of the SADC for the period 1980-2004. An assessment of the theoretical and applied empirical literature is discussed. This informed the empirical methodology employed which is an adaptation of Bayoumi and Eichengreen (1997) OCA index. The results established that the core implications of OCA theory find strong empirical support when applied within the SADC context. Yet the results do not display strong support for forming a monetary union in the SADC region based on OCA criteria. Overtime the degree of asymmetry of shocks in the SADC is increasing and the extent of international trade ties seems to be waning across the periods. Finally, the study managed to sort out which countries would be best prepared to be founding members of the SADC monetary union in the near future and further obtained a ranking of their declining suitability.