Benefits of a SADC-Wide Currency: Estimates of Potential Intra-Regional Transaction Costs

At the outset this paper highlights the macroeconomic convergence goals of countries in the Southern African Development Community (SADC).  Although an analysis of economic performance in SADC countries shows some difficulty in the achievement of these goals, the history of monetary unions in Europe since 1857 shows that unification is a challenging prospect for any region.  SADC countries can use earlier experiences in Europe as guidelines to ensure successful monetary unification in the region. Preliminary estimates from limited available data sources show considerable cross-border financial (and therefore foreign exchange) flows between SADC countries.  Apart from possible political and macroeconomic stability benefits to be reaped from monetary integration (aspects that are outside the scope of this paper), the adoption of a single currency will reduce both direct transaction (commission, bid/offer spreads and fees) and indirect personal (time spend at and travel costs to banks and bureaux de change) costs of doing business in the SADC region.  Such savings will increase SADC’s regional gross domestic product, but owing to incomplete data and data deficiencies, a full estimate of savings and GDP increase cannot be made.