Starting next January 2020, countries within the West African sub-region will be able to use a single currency called the ECO.
In the Nigerian capital of Abuja, heads of state from the Economic Community of West African States (ECOWAS) on Saturday confirmed their intent to create a common currency called the eco.
New ECOWAS head and Niger’s president, Mahamadou Issoufou, stressed the importance of sticking to the roadmap to introduce the new currency, but there is still a significant amount of work to do if people are going to be spending ecos in 2020 as planned., after decades of discussion towards achieving regional economic integration.
The West African leaders endorsed the currency at their 55th Ordinary Session, along with a road map leading to citizens across the region being able to use the single currency on 1st of January 2020.
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The previous roadmap spelling out the paths to single currency outlined three primary criteria for the adoption of the currency and ensure convergence of the various economies.
The most important of these criteria include the need for each ECOWAS member country having a budget deficit of not more than 3%; an average annual inflation of less than 10% with a long-term goal of not more than 5% by 2019; and gross reserves that can finance at least three months of imports.
The other convergence criteria that have been adopted by ECOWAS is that a member country’s public debt must be less than 70% of the country’s Gross Domestic Product.
There is also the issue of central banks financing budget deficit not more than 10% of previous year’s tax revenue, and nominal exchange rate variation of plus or minus 10%.
At the end of the Abuja meeting a communiqué read by Nigeria’s Permanent Secretary, Ministry of Foreign Affairs, Mustapha Suleiman noted that the regional leaders instructed the ECOWAS Commission to work in collaboration with West African Monetary Agency.
The commission is also expected to work with West African Monetary Institute and all central banks to settle on a symbol for the single currency – the Eco.
The ECOWAS Chairman President Issoufou Mahamadou has said that the revised roadmap does not affect the date for the issuance of the single currency in January 2020.
Speaking about the deadline for adoption Mahamadou said: “We have not changed that but we will continue with assessment between now and then.
“We are of the view that countries that are ready will launch the single currency and countries that are not yet ready will join the programme as they comply with all six convergence criteria.”
Established in 1975, ECOWAS has a combined population of 385 million across the following countries: Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.
But what could make integration and a move towards a single currency difficult, is that eight of these countries – Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo, are currently using one currency – the CFA franc.
It is not yet clear how much the total cost of moving to a single currency will be for the region, nor for each of the West African countries involved, nearly all of whom are suffering from serious economic stagnation..
West Africa’s “Eco” single currency ambition has a slim chance of success
ECOWAS, the regional bloc of countries in West Africa, has just revived an old dream: adopting a single currency across member states.
After first broaching the idea at the turn of the millennium, the target launch date for the single currency has been postponed several times after initially being slated for 2003. The latest date to be agreed for the launch of the currency is 2020, with member states also agreeing to name it”ECO.”
A commonly held view as to why the policy is being contemplated is that governments in the region are keen on even more integration, in addition to existing visa-free travel. But just as it has been for much of the past two decades, there are currently too many stumbling blocks in the way.
For starters, 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%, notes Charlie Robertson, chief global economist at Renaissance Capital. And while ECOWAS say the integration will be gradual as countries meet the criteria, it’s unlikely that a 2020 launch date is feasible at all. Even though the date has been set, there is no significant progress as regards 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?”
Those disparities are also particularly highlighted by Nigeria’s economic size 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 says.
For its part, ECOWAS is keen to play up the hypothetical upside of a single currency possibly reducing the cost of trade across the bloc—but it does so while ignoring existing trade barriers. As SBM Intel, a Lagos-based intelligence firm, notes in a research report on the viability of the ECO, fixing underlying “structural issues” which hobble trade, including “inadequate supply chain infrastructure, arbitrary border tariffs and non-tariff barriers, abysmal corruption and wide-area insecurity” are all more viable solutions for boosting intra-bloc trade.
The French connection
In trying to create a single currency, ECOWAS will be looking to squash one which already exists: eight of its member states already use the France-backed the West African CFA franc. As part of a long-running monetary agreement, those countries deposit half of their foreign reserves with the French treasury. While the policy remains a subject of criticism in both African and European circles, untangling from such a complex and historic agreement will likely be a long and difficult process, says Cheta Nwanze, lead researcher at SBM Intel.
For Robertson, it’s “bizarre” that countries who use the French-backed currency will even consider revising their currency policy at all given the benefits of lower interest rates and currency stability.
“What’s been driving growth and investment in Cote d’Ivoire and Senegal in the last 10 years has been high investment because of low interest rates which come from a stable currency guaranteed by France,”
“Why jeopardize that and align with countries with less stable currencies like Nigeria and Ghana and with much higher levels of inflation and interest rates?”
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