WINDHOEK - There has been speculations in recent years as to the real reason behind the removal of Libya’s Muammar Gaddafi with one of the most popular theories being that he was in the process of establishing a single gold-backed currency for Africa called the Gold Dinar. Many conspiracy theorists are of the opinion that Gaddafi’s new plan for Africa would have meant an entirely new banking system for the continent which would have taken economic power away from the current western powerhouses and would have dealt a severe blow to the US Dollar-based monetary system.
However, two local economic analysts seem to have opposing views on the practicality of a single African currency, with one saying such an ambitious plan is not pragmatic while the other feels that a common continental currency has the potential for strong value given the world’s dependency on African commodities.
According to Klaus Schade, a research associate at the Economic Association of Namibia, these conspiracy theories are not credible. To support his view, Schade put the African economy into perspective, noting that the Gross Domestic Product (GDP) of the entire Africa amounted to some US$3.4 trillion in 2016 while the GDP of China, the world’s second largest economy, was more than thrice this figure at US$11.2 trillion.
“Currently, a lot of African currencies are not convertible. It would take quite a while, before markets would accept an African currency. The value of other currencies (USD, EUR, Swiss Franc, Chinese Yuan CNY etc.) would only be affected if the African currency were regarded as a safer haven. That will not happen in the foreseeable future, amongst others, because the African economies are not diversified and competitive enough,” said Schade in response to questions from New Era.
He continued that an African currency would not pose any threat to existing strong currencies and cautioned that a common African currency could even be detrimental to developing the economies, since it will be stronger than some existing African currencies, which would become less competitive like Greece with the Euro, while strong economies such as the South African, Egypt, Kenya would gain an additional competitive advantage, because the African currency would be weaker than their currencies currently.
“A single African currency would not help developing the whole continent. We should therefore learn from the experience with the introduction of the Euro, before we consider introducing an African currency. Anyhow, before that will happen, we need to close the gap between upper middle-income countries and least developed countries on the continent. That will take still quite some time. A first step is regional and continental integration with a strong focus on harmonisation of custom procedures, standards, investment in infrastructure (transport, finance, communication, electricity, water, etc.) in order to create new and expand current economic activities,” Schade explained.
Also weighing in on the debate, Claudia Boamah, an economic analyst at Capricorn Asset Management, pointed out that the demand for a currency is the driving force behind its appreciation, meaning that the more a country has to offer the world, the more the world needs that particular country’s currency.
“Africa has a lot to offer to the world. In fact, as at 2016, only a fifth of our exports were traded on the continent while the rest, 80 percent were sent overseas. All things being equal, a common continental currency would have a strong value considering the world’s dependency on Africa for commodities. As for how the rest of the world might react; currencies have a relatively defined value.
If one currency is appreciating then it is gaining strength against other currencies. Therefore, a currency for which there may very well be a strong demand and consequently strong value might not be received well by those whose currencies currently dominate world trade,” said Boamah.
However, she also warned that world trade is much more than commodity trade as it is also comprised of manufactured goods and other intangibles all of which are markets that Africa does not dominate. “Even in the realm of commodities, prices are set by external bodies over which we have little influence and we trade more off the continent than in it, and unless these factors change the single currency would be very vulnerable to external shocks,” Boamah concluded.
Meanwhile, the debate about the single African currency has drawn much comment from around the world even though many brush it off as a mere conjecture and conspiracy. Peter Koenig, a renowned economist, geopolitical analyst and former World Bank employee, said in a recent interview that Gaddafi was certainly not killed for humanitarian reasons but because he wanted to empower Africa.
“He had a plan to create a new African Union, based on a new African economic system. He wanted to introduce the Gold Dinar to back African currencies, so they could become free from the dollar. He wanted to protect Africa’s vast natural resources from the Western looting. The imperialist eliminated him,” said Koenig.
Other theorists claim that Gaddafi also wanted to detach his oil sales from the US dollar, which would mean no more trading hydrocarbons in US dollars. The Organisation of Petroleum Exporting Countries established a rule in the early 1970’s that all oil should be traded in US dollars.
The idea was that other African and Middle Eastern oil and gas producers would have followed suit. In fact, Iran already hatched a plan in 2007 to introduce the Tehran Oil Bourse, where anyone could trade hydrocarbons in currencies other than the US dollar. That idea came to a sudden halt, when the United States of America started accusing Iran of harbouring weapons of mass destruction, an accusation which was never verified but was confirmed by the 16 most prominent US security agencies and later also by the UN body for nuclear safety, the International Atomic Energy Agency (IAEA), in Vienna. While conspiracies are very difficult to prove, many theorists feel that Washington needed a pretext to stop the Tehran Oil Bourse, which would have decimated the need for dollars, and thereby most probably would have meant the end of the dollar hegemony.