In June 2019, the 15 member states of the Economic Community of West African States (ECOWAS) indicated they will move forward with the single currency plan across the Western African region. This idea, born more than 30 years ago, is now on the fast-track to implementation. ECOWAS member states intend to put the currency in use as early as 2020.
Higher economic integration among member states
Eco is the name for the proposed common currency, which will be regulated by the West African Monetary Zone (WAMZ). The goal of this currency is to create an economic powerhouse across the region through economic integration of the member states. The members states also expect it to boost economic development across the region. Economic analyst, Tokunbo Afikuyomi, mentioned this impact in an interview with CNN: “The single currency if properly implemented will improve trade by allowing specific countries to specialize at what they are good at, and exchange it for other goods that other countries in the bloc produce more efficiently.”
Potential benefits of the Eco
There are two groups among the 15 member states. On one side, we have 8 countries that use CFA franc (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo). On the other, we have countries that do not use the CFA franc (Cape Verde, The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone).
A successful integration of the currency will bring together over 385 million people in the region. This will solve issues with currency exchanges that these nations currently face in international trade, tourism trade and the banking industry.
Lower transaction cost in trading will also help these countries in creating, at lower cost, frameworks that work for them. This also means countries will be able to do international trade with a lot of ease, due to reduction of transaction costs. This reduction in cost would also boost business activity in the region. A good example is the Euro integration. A report showed that there was a significant increase in trade volume, tourism and international relations due to a common currency across the European region.
Price transparency is also another area that has hindered increased trade between these nations. With 8 of these nations already in a common currency, it has become difficult for them to trade efficiently with the other seven ECOWAS members. This however should change with the introduction of the Eco. Eco will bridge the gap between all these nations, ensuring the achievement of standardized pricing of goods and services across the region.
By pulling resources together, the member countries will also cause a decrease in both inflation rate performance and interest rates. With multiple countries participating in such an endeavor, political instability in one country will not significantly affect the currency in terms of inflation and interest rates. These benefits of the Eco will enable member states to distribute risks across a larger pool. Therefore, there will be a lot of confidence in this currency; it can also lead to increased investments across the region.
Problems facing the Eco
A lot of discussions arose on the projected impact of this new currency. There are concerns that upon establishment of the currency, Nigeria will dominate and may end up making all the critical decisions for the region. Nigeria with a population of over 191 million, makes up around 67 percent of the entire ECOWAS regional GDP.
Nigeria has also raised issues over the proposed move to integrate the currencies, with President Buhari quoted as saying: “As Africa’s largest economy and most populous country, we cannot afford to rush into such agreements without full and proper consultation with all stakeholders.”
Francophone countries are also posing a major issue and they may not all be convinced about the new currency. They have to consider if they want an economic integration with countries that have much higher inflation rates and interest rates. This is one of the reasons why these countries oppose to such a move.
However, for Francophone countries, the urge to abandon a colonial currency and join other African leaders in creating a common African regional currency is strong. There are also many questions about the success of this CFA franc – whether it has helped African countries or it is beneficial to only France.
Francophone countries have to deposit 50 percent of their central bank balance with the French Treasury, which manages the money. France also has a permanent seat in their central bank and is involved in the fiscal policy-making of these countries.
Experts have also expressed concerns with many coming to the consensus that a common currency alone will not boost the economic development of the region. There are underlying issues such as political instability, corruption, lack of resources, illiteracy, poor healthcare and ethnic conflicts – all of which can negatively affect this move.
Regardless of the challenges of establishing a single currency in the region, this is a good move in the long run. European Union, as a point of reflection, highlights why a single currency is important for economies that want to integrate. The process may be difficult but the fact is, long-term benefits will outweigh the struggles of creating this system.