Many opponents rose against this cause, with genuine concerns which include who become the regulatory body of this universal currency, which countries will run the policies of the currency, would countries not lose their financial autonomy, moreover the economic stability differs from each country. These reasons override the universal currency idealization, it was finally was killed and buried for life. After this birth the regime of different currencies of the world. It trickled down to Africa through the basis of colonial powers, the respective colonial masters introduced their own currencies which later upgraded to the current local versions of currencies but still having ties to colonial roots.
An evident example is the CFA Franc, which ties down the French colonies widely used in francophone countries. As the years grew, the value of each country’s currency also grew more for the worse. This gave rise to the currency markets and currency wars. This is where relative prices of national units or exchange rates are determined. The existence of different currencies has become an essential key to global economic growth. Countries have different currencies mainly because of trading, economic activities and its benefits. But for decades now, the different African currencies haven’t been able to stand tall in the currency market. Currency plunge and instability have been the order in several African countries.
According to the World Economic Forum, Nigeria naira has lost more than 20% of its value in the last year,the Ghanaian cedi, the South African rand, the Zambian kwacha, Angolan kwanza, The Ugandan and Kenyan shilling, the Ivorian CFA and several African currencies have been under intense pressure in past years and up to now. These plunges are caused due to diverse reasons which are beyond the control of the continent.
Commodity markets slump
It is undisputable true that Africa is rich in natural resources, the health of African economies depends heavily on commodity exports. Therefore, the region’s economies are very vulnerable to fluctuations in commodity supply and demand. In plain words, when commodities prices are up, African currencies will shoot up, when commodities prices go down, our currencies follow suit. In 2009-2010, our resources attracted China to become a key investor in the region’s economies receiving nearly 25% of the continent’s export. When China’s economy began to slow down in 2015 it highly affected regional economic health. This weakened the commodity prices for natural resources like gold, timber, diamonds, etc.
Demand for Africa resources was incredibly low, this dwindled the foreign exchange market for Africa since we were their largest trade partner. Political uncertainty and instability also deepen the causality instilling volatility and distrust in their financial markets. The process made the African currencies a risky investment which didn’t look attractive enough to yield better returns.
Crude price depreciation
The price of crude oil has escalated downward in the past years, the situation has existed since 1986. And has been a bad sign for the Africa oil producers such as Nigeria and Angola, the end results depreciated African currencies especially with exporting countries. These countries always have to push more funds to support their currencies. These factors caused the African currencies to be a shadow amongst other global currencies and it was beyond the continent control. For years, the narrative has been the same. In recent times, due to advanced global economies, the situation has worsened. The western currencies have become a mini-god and powerhouses that direct where and how the strength of the regional economies should be since most of the continent’s trading activities are pegged into either dollar, euro, pounds, yuan, etc.
With this rationale and the fight for total sovereignty in all areas of growth as a continent, many economists have proposed diverse solutions to solving the fall of the African currencies. The most prominent one is the initiating of the universal currency the ECO. The region has two functioning monetary zones, the CFA franc zone obtained from the former French colonies and the common monetary zone. Both monetary systems have successfully served the economic status quite well but on the other hand, it being very prone to inflation and instability. In West Africa, the countries are divided into two constituents, Anglophones and Francophone both under the umbrella of ECOWAS. The francophone whose monetary symbol is CFA franc which is pegged to the euro, thirst for an exist point. The CFA has been seen as a colonial relic diminishing the sovereignty of the French nation-state. The way out is to create a new currency ECO which will eliminate French colonies countries lodging half of their reserve into French treasury as well as cutting off currency managerial power from France. The ECO is the proposed name for the universal currency by the West African Monetary Zone.
They plan to introduce the new currency in the economic community of the West African countries largely replacing the CFA franc which is set to be implemented this year. However, the idea is not fully welcomed by all, although the ECO may be a savior to francophone countries, Anglophone countries like Nigeria, Liberia, and Ghana seem to be out of the equation as they have their own currencies. ECOWAS believes that the common currency can promote regional trade and investments, Anglophone countries consent and agreement are highly needed for successful implementation because promoting monetary integration in West Africa without Anglophones countries would be a disaster and an introduction of two ECO for both constituents will be a fiasco.
Aside from the issue of both Anglophones and Francophones agreeing to use one currency, the bigger issue and question is really not a currency reform. Not everyone is optimistic about the change, opponents of this currency change, keep posing the question, will rebranding of the old Franc CFA make it stronger in the currency market? Is Africa’s problem just a problem of money or there is more to it. Most people believe the real issue is the mismanagement of public funds, poor infrastructures, corruption, undisciplined fiscal policies, poor rule of laws, low investment due to investor’s mistrust in African leaders and governments. These are the real issues, ECOWAS and other monetary bodies need to tackle. Is there a definite guarantee ECO can boot the economic health of the region? A more promising initiative would be providing real solutions tackling good governance and leadership, providing fundamental monetary policies and having the disciple to follow through.
The continent has suffered for decades of decline and marginalization, civil wars, poor economic policies, and selfish leadership. This situation has led the region to the mercies of donor countries, reducing the sovereignty of the region in all aspects especially political and the economy. The basic needs to be set well if African countries do not get their macroeconomic policies right and in good shape, they will not get the full benefit from a better economic and political governance and its associated capital inflows. Rather we will continue to be stagnant and continue to eat the crumbs at the table of rich countries. A shred of practical evidence is the ineffective state of our currencies.
It is quite clear that the ECO can build and strengthen regional cooperation and integration within Africa through the monetary union, as there have been successful evidence; the launch of the Euro has built a massive interest in other regions, from the Middle East to Latin America and East Asia. Monetary union has been a medium that reinforcing regional cohesion and signifying a commitment to regional solidarity. But the journey to a successful monetary union didn’t happen in a day. The transition to its current state was tough backed by diverse and stable monetary policies, new institutions and laws especially with the Europeans systems of Central banks even to date there are still small sparks of controversy around the Euro through the monetary union. If well-advanced countries had a hard time implementing a universal currency then the challenges for Africa will experience introducing one currency will be huge.
Our foundation needs to be right, our political and economic pillars are weak, and this needs to be dealt with by putting in place regional institutions to deal with currencies shocks, effective way of disciplining countries’ fiscal policies, better ways of making our commodity market yield more. If these issues are not tackled, introducing a single currency would be of no use. It is not assured that a single currency can make our currencies competitive and diversified enough. The introduction of Eco would not pose any threat to existing strong currencies it might even be detrimental to our emerging markets. We need to first work on our leadership structure, corruption issues, effective institutions, and working policies redefined commodities etc., which will take some time to get to such point. We as a continent needs to focus our energies in dealing with these issues that are destroying the roots of our prosperity. Particularly in our commodities and natural resources, the equation is quite easy in the global markets, as a country the more you have something better to offer the world the more supply and demand, the more the world and its markets appreciate your currency. This is the driving force behind currency appreciation and Africa lacks this.
In 2016, only 20% of exports were used in the Africa continent, the rest of the 80% were sent overseas, this clearly shows how much Africa has to offer. A common currency would be much stronger and have better value for the region if we first find a way of making the demand for our commodities higher and have better prices and also launching into manufacturing goods using our natural resource since the world depends on African commodities and its natural resources.
This will help our currencies gain enormous strength to compete against other currencies. In our current commodity market, external bodies determine the prices of Africa’s commodities we have little or no influence in this area until these factors are dealt with the introduction of the new currency will do little or no help and might still experience more external currencies shock. As a region, we must find out the symptoms of our diseases, understand these symptoms before finding remedies. ECO might be our remedies, however, if we don’t take the necessary steps in dealing with the roots cause of the diseases, we will continue to have the same story till the end of time.
Article from AFRIC Editorial
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