The ECOWAS Currency: the Eco – the Way Forward
When in 2019 the 15-member Economic Community of West African States (ECOWAS) agreed to adopt a common currency to be named the ‘ECO’ by 2021, little did they envisage the roadblocks facing it to be as insurmountable as they are now. The Eurozone experience has shown that common currencies in regional bodies can be unwieldy. ECOWAS countries would therefore have to overcome serious challenges.
Economist Robert Mundell, in a study suggests that for a common currency of a regional body such as the ECOWAS to succeed, four conditions must be satisfied. The first is an integrated labor market that allows free movement of workers within the currency union to provide and fill employment gaps. The second is the absence of regional trade imbalance that could be eliminated by price and wage flexibility. The third, according to Mundell, is the subsequent creation of a centralized mechanism for fiscal transfers for member countries that suffer as a result of labor and capital mobility. And lastly, member countries must have similar business cycles to avoid stress in any one member state.
The launch of the single currency in West Africa has failed on several attempts largely because member states themselves say that they must focus on economic recovery, especially after the COVID-19 pandemic. Since its conception in 2003, the launch has been postponed four times between 2005 and 2020. The launch has now been rescheduled to 2027. Leaders have also set a criteria to be met by member states that include curbing inflation, budget deficits, and their financing, reserves, and exchange rate stability. Members need to meet their debt-to-Gross Domestic Product (GDP) ratio.
Nigeria has dragged its feet for the currency to be launched. Nigeria accounts for the region’s 65 percent GDP, it also has 50 percent of the region’s population and one of two of the region’s net oil exporters. The Francophones wish to take up the Eco in replacement of the CFA Franc ahead of the rest of member states, according to @GuardianNigeria.
Indeed, political considerations emanating from colonial legacies continue, as former French colonies with their own CFA currency have their own ideas of how the Eco must work. The CFA is used in francophone West and Central African nations of about 150 million people. Economist J. J. Afo Larbi quoted by DW comments, “There’s need to promote the currency and educate the indigenes of individual countries for it to work.” He adds, “Some countries believe their currency is stronger than the other. Therefore, this would complicate regional trade within the ECOWAS region … West African countries already don’t have a structured way of managing their banking and trade sectors. Therefore, I don’t see the Eco currency coming in place any time soon.”
The CFA is supported by the French central bank and for that the colonials pay collectively an equivalent of US$$500 million annually to the French treasury. The practice could be interpreted as exploitative but the former colonials certainly enjoy a degree of currency stability that eludes almost all of the Anglophone former colonial subjects. Ghana and Nigeria are much bigger economies than quite a number of the Francophone members of the ECOWAS.
Ghana is a major exporter of gold as Nigeria is of oil but the economies of the two West African nations do not enjoy the support enjoyed by the francophone from their former colonial overlords. In addition to the external issues of colonial influences is the language barrier between the two major colonial blocs in the region and their socio political ramifications.
Other than the difficulties and the inhibitions that stand in the way of a successful regional currency in West Africa, the benefits to the region and beyond are massive. The new Eco currency has the potential of enhancing trade and reduce the cost of inter-country transactions. However, there are potential challenges and risks that include uniting financial systems with different economic structures. With different economic structures, some weak and some strong, it would be difficult to adjust their currencies in times of emergency. All of these and more of the challenges would continue to pose questions of stability of the currency and so need to be addressed by experts of member states.
At a time like this in West Africa when the currencies of the leading economies like Ghana and Nigeria are in distress, Amandla opines that it is not an idea worth pursuing. Ghana’s economy in under the supervision of the International Monetary Fund (IMF) and Nigeria is seeking to redesign the naira. The naira and the cedi are both beset by currency speculation that have caught both currencies in unbridled inflation, rendering them valueless against the US dollar.
African economies have always been under the hawkeyed supervision of the West and Amandla is convinced that until this vestige of colonialism is removed, the matter of potential wealth of Africa will remain an illusion while others enjoy at the expense of the people of the continent. The setbacks are many, and the road to a 2027 launch is slippery. A lot will have to be done to achieve a compromise for a regional currency in ECOWAS. It would serve a fitting opener for the Africa Union.
Posted by