By Akech Marial Zieu Koriom
Monetary Union is an agreement between two or more states creating a single currency area. A monetary union involves the irrevocable fixation of the exchange rates of the national currencies existing before the formation of a monetary union. Historically, monetary unions have been formed on the basis of both economic and political considerations- However, a monetary union is accompanied by setting up a single monetary policy and establishing a single central bank or by making the already existing national central banks the integrative units of a common central banking system.
The most prominent example of a monetary union at the turn of the 21st century was the creation of a single currency among most European Union (EU) countries—The euro. This example demonstrates the interplay of economic and political factors in the process of setting up a monetary union.
From an economic point of view, a monetary union helps reduce transaction costs in an increasingly integrated regional market. It also helps increase price transparency, thus increasing inner-regional competition and market efficiency.
The Case of South Sudan’s Fragile Economy.
A Fragile Economy- Refers to an economic system that is vulnerable to external shocks, fluctuations, or disruptions due to various factors such as lack of diversification, high debt levels, political instability, weak institutions, natural disasters, or global economic downturns.
Strategies for a Country with Devalued or Weak Currency in a Monetary Union. (South Sudanese Pound SSP)
- Adjusting Fiscal Policy
A country with a devalued or weak currency in a monetary union can adjust its fiscal policy to counteract the negative effects of the weak currency. Fiscal policy refers to the government’s use of spending and taxation to influence the economy. By increasing government spending and cutting taxes, the country can stimulate economic growth and reduce unemployment.
- Implementing Structural Reforms
Structural reforms can help a country with a devalued or weak currency in a monetary union to improve its competitiveness and long-term economic growth. These reforms may include labour market reforms, product market reforms, and regulatory reforms.
- Pursuing Export-Led Growth
A country with a devalued or weak currency in a monetary union can pursue export-led growth as a strategy to counteract the negative effects of the weak currency.
- Building Competitive Advantage
A country with a devalued or weak currency in a monetary union can build a competitive advantage by focusing on specific industries or sectors where it has a comparative advantage. By investing in research and development, education, and training, the country can develop specialized skills and knowledge that are in demand in the global marketplace.
- Diversifying Economic Activities
A country with a devalued or weak currency in a monetary union can diversify its economic activities to reduce its dependence on a single industry or sector. By promoting economic diversification, the country can reduce its vulnerability to external shocks and fluctuations in global markets.
Conclusively, South Sudan as a Country with Weak or devalued currencies can potentially join a monetary union, but it would face significant challenges and Considerations for Member States of the East African Community (EAC).
The Writer is a South Sudanese Economist & Teaching Assistant at Upper Nile University & He can be reached @ akechd.kariom@gmail.com