Should the Southern African customs union form an optimum currency area?
Southern Africa's viability as a monetary union has long been under discussion. The Southern African Customs Union (SACU) is the world's oldest operating customs union, and one of the most efficient and it has the potential to foster meaningful regional economic integration. A strong foundation has been laid down by the SACU member countries in terms of trade relations, financial cooperation and policy coordination. Using the optimum currency areas (OCA) theory, the study examines the readiness and compatibility of the SACU member countries to establish an optimum currency area. The OCA theory reveals that SACU members are in very good shape and already exhibit some attributes necessary for forming an optimum currency area (OCA). The empirical evidence suggest that, from an economic perspective, it is feasible for SACU countries to move towards a fully-fledge monetary union because of the increasing macroeconomic convergence, and this means that the countries are undergoing similar shocks. The deeper trade relation that exists between SACU member states seems to have important influence on business cycle co-movements. Accordingly, the study concludes SACU has advanced its integration more than what is required in a Customs Union and that a monetary union within SACU is feasible, given the macroeconomic convergence, similar production structures and risk-hedging possibilities of member countries and because peripheral countries are able to resort to South Africa's capital market and overdraft facilities. However, the absence of real political will among the member countries will be a major stumbling block in the formation of a monetary union. It is important to note that even the formation of the EMU was not exclusively driven by economic merits per se, but also by the real political will, which had a major influence on its realisation. Such strong political will and unity on issues around the formation of the common currency would be needed to SACU countries to override issues of national interest and, the study therefore recommends that SACU countries should draw lessons from the EMU and CFA Franc zone model as these are empowered supranational authorities that have counteracted sovereignty and other political concerns to bring about meaningful and deepening economic integration in the region.