The Eco: West Africa’s future single currency

The target launch date for the regional bloc of countries in West Africa’s single currency has been postponed several times; in 2005, 2010 and 2014; since the concept first arose in 2003. Now the Economic Community of West African States (ECOWAS) is planning to launch the currency in 2020, with member states agreeing to name it the ‘ECO.’

Reports indicate that governments in the region are keen on more integration and a single currency will facilitate trade, lower transaction costs and payments amongst ECOWAS’ 385 million people.

Currently eight of ECOWAS countries i.e. Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo jointly use the CFA franc while the remaining six members have their own independent currencies.

Economic analyst, Tokunbo Afikuyomi told CNN that, “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.”

A report by the African Development Bank Group (Afdb) indicates that the 2020 deadline for the single currency will most like be postponed again unless the region can align with its monetary and fiscal policies.

Countries are required to meet a ten convergence criteria, set out by the West African Monetary Institute (WAMI), by the 2020 deadline. The primary four being: a budget deficit of not more than 3%, an average annual inflation rate of less than 10%, Central Bank financing of budget deficits should be no more than 10% of the previous year’s tax revenue and gross external reserves worth at least three months of imports.

Ecowas flag. Photo: Cropped from original source/US Army Africa/ Attribution 2.0 Generic (CC BY 2.0)

The six secondary criteria to be achieved by each member country are: Prohibition of new domestic default payments and liquidation of existing ones, tax revenue should be equal to or greater than 20 percent of the GDP, wage bill to tax revenue equal to or less than 35 percent, public investment to tax revenue equal to or greater than 20 percent, a stable real exchange rate and a positive real interest rate.

Read: ECOWAS single currency to be launched by 2020

However reports indicate that although countries may meet the criterion by the deadline they fall behind thereafter thus posing the main difficulty in inconsistencies.

Quartz Africa reported that, only five (Cape Verde, Ivory Coast, Guinea, Senegal and Togo) of the region’s fifteen countries currently meet the single currency’s criteria of a budget deficit not higher than 4% and inflation rates of not more than 5%, as noted by Charlie Robertson, chief global economist at Renaissance Capital.

Additionally while ECOWAS say the integration will be gradual as countries meet the criteria, it’s unlikely that a 2020 launch date is feasible as there is no significant progress in the design, production and testing of the currency notes.

Given that various economies in the region are at “dramatically different levels of development,” the leadership of ECOWAS is being unrealistic in both its timing for the currency’s launch and expectations of what it might achieve, Robertson says. “You’ve got very different levels of debt, interest rates and budget deficits. Trying to align these countries to operate as one is extremely difficult,” he says. “What currency policy is right for two such divergent countries like say Ghana and Burkina Faso?”

There is also the glaring disparity in the economic size of Nigeria in the region. “Nigeria is 67% of ECOWAS’ GDP, so really this isn’t a single currency for 15 countries, this is the Nigerian Naira plus a few countries,” Robertson added.

Other economists however stand by the efforts towards a single currency stating it can offer a chance, to put up a collective and effective front against monetary shocks caused by policies implemented in the rest of the world and other disruptions.