Is Southern African Custom Union an optimum currency area?

Abstract

The primary aim of this study was to investigate if SACU could be an optimum currency area and so to form a common currency on trade. SACU, as at the investigation of this study has shown, is already having a common monetary area. A progress has been made in realising macroeconomic convergence such as inflation stability within the region. The results also show that SACU economies are open. There is already a mutual trade in SACU and looking also at cultural ties within the member states, is also very high. This investigation is done in cognizance to the theory of optimum currency area (OCA).The cointegration results show long-run relation in the region. The ECM terms are negative and significant in all cases. Under GPPP the speed of adjustment has given rise to the conclusion that SACU countries can potentially constitute an OCA.