Abstract
This study investigates the presence of currency substitution in eight African countries--Egypt, Morocco, Nigeria, Ghana, Kenya, South Africa, Tunisia and Zambia--for the period 1976 to 2005 using both regional and US dollar as anchor currencies. We find that currency substitution is prevalent in Ghana and Nigeria when CFA franc is used as an anchor currency. However, when US dollar is used as an anchor currency there is no evidence of currency substitution in Ghana but we still observe the presence of currency substitution in Nigeria. Also we find presence of currency substitution in South Africa but not in Egypt when the US dollar is the anchor currency. For Kenya, Tunisia and Zambia there is no evidence of currency substitution irrespective of the anchor currencies considered. In the case of Morocco, we observe no evidence of currency substitution when the Egyptian pound is used as anchor currency but there is weak evidence of currency substitution when the US dollar is considered.