After 30 years of negotiations for the joint currency within the regional bloc, countries in West Africa revived an old dream and adopted a single currency across member states. According to previous arrangements, the currency had to be introduced in 2003 but was later postponed to 2005, 2010 and then 2014. At the moment 8 countries; Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo within the bloc use the Franc CFA which is largely controlled by France and pegged to the euro while the other countries; Cape Verde, The Gambia, Ghana, Guinea, Liberia, Nigeria and, Sierra Leone each have their currencies. Thus, the objective is to create a common currency for the region which will be backed by the international reserves of union members under the management of a new regional, independent central bank.
However, for the currency to be implemented, countries are enjoined to meet ten convergence criteria put in place by the West African Monetary Institute (WAMI). Four of these major criteria includes; a single-digit inflation rate at the end of each year, a fiscal deficit of no more than 4% of the GDP, a central bank deficit-financing of no more than 10% of the previous year’s tax revenues as well as gross external reserves that can give import cover for a minimum of three months. According to the bloc, the roll-out of the currency will be gradual and will kick off with countries which meet the laid out criteria. Advocates of the eco noted that the single currency will go a long way to facilitate trade, reduce transaction costs thereby facilitating payments amongst the 385 million people in the region.
The introduction of the common currency is coming at a time when activists are fighting against the Francs CFA. In 2017, Kemi Seba, a Franco-Beninese activist was arrested and charged for burning a 5,000 CFA note. Seba is one out of several other activists rejecting the CFA which is currently being used in 14 countries in Africa. Those leading the anti-CFA movement opine that economic development of the 14 African countries can only be achieved if they get rid of the currency. Although the anti-CFA campaign is supported by many, some economists have emphasized on the fact that the CFA is instrumental in driving growth countries like Ivory Coast.
While many believe the new currency is the way forward for West Africa, analysts indicate that Nigeria which has the largest economy in the region will dominate the monetary policy and stall the projected benefits.
The development of the West African currency, Eco
West Africa has for a very long time recognized the importance of international monetary cooperation. In the early 90s, Anglophone countries such as Nigeria, Ghana, Sierra Leone and, The Gambia created the West African Currency Board and had a common currency, West African Pound. Meanwhile, the West African Monetary Union, UMAO, which was one of the few examples of complete monetary unions in the world was created in 1962 for Francophone countries like Benin, Ivory Coast, Mali, Mauritania, Niger, Senegal and Burkina Faso and, Togo later joined. This body integrated the monetary system of the 8 countries under one central bank known as the Central Bank of West African States.
The resolution to form a single monetary zone for the region was agreed in Lome, Togo in 1999 by the ECOWAS Heads of State during a summit of the Economic Community of West African States, the region’s economic commission. In 1994, there was the creation of the West African Monetary Agency (WAMA) which was aimed at promoting monetary cooperation as well as policies and programmes for achieving monetary integration.
On 20th April 2000, the Heads of State and Governments of The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone, acting within the ECOWAS framework of regional integration, signed a declaration on the creation of a second Monetary Zone which was later launched under the name West African Monetary Zone (WAMZ).
Later in 2001, the West African Monetary Institute (WAMI) was set up with headquarters in Accra, Ghana as an interim organisation in preparation for the West African Central Bank. It was charged with providing a framework for central banks in the WAMZ to start the integration and begin preliminary preparations for the printing of the physical money. Though ECOWAS members had planned for the common currency to be launched earlier than now, conditions have so far not permitted its effective functioning. By June 2002, only The Gambia, had satisfied three of the four major criteria, two countries satisfied two convergence criteria each, while two other countries satisfied only one criterion each. Hence, the launch of the currency which was to take place in 2003 was postponed. During a meetup by the Convergence Council of Ministers and Governors of West Africa which was held on May 2009, the launch of the currency was rescheduled to 2015.
Today, WAMZ Monetary Union program still has a long way to go, but ECOWAS in 2018 reaffirmed its intention to restart the process with an introduction in 2020.
Does ECOWAS need a single currency?
Proponents of Eco argue that a single currency will promote trade within the sub-region and boost investment. However, it should be noted that overseas trade represents 80% of total trade on the continent, while trade between African countries accounts for 10%. Furthermore, Nigeria in 2010 exported only 2.3% and imported less than 0.5% from other West African countries. Thus, the idea of solidifying trade links requires more than a single currency.
But it is however believed that adopting a common currency will bring about the significant increase in Gross Domestic Product (GDP) due to reduced transaction costs, expansion of foreign trade, a drop in the real interest rate and the easing of the current account constraint. Furthermore, there is a high probability of being less susceptible to unexpected reversals of capital flows, which make the implementation of independent monetary policy more costly. Which in effect means that the introduction of the Eco is likely to stimulate bilateral trade between member states in WAMZ.
However, a policy analyst with Gatefield, Adewunmi Emoruwa, noted that the introduction of a single currency may not solve the region’s economic problems. Several others think that the time frame set up for the launching of Eco is unrealistic, hence not all countries are sure to meet the stipulated conditions by 2020. At the moment, only Cape Verde, Ivory Coast, Guinea, Senegal and, Togo meet the single currency’s criteria of a budget deficit not higher than 4% and inflation rates of not more than 5%.
Nevertheless, for Eco to become efficient, there is a high need for member states to strive to achieve a high degree of sustainable convergence as far as low inflation and sound public finances are concerned.
Article from AFRIC editorial
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