West Africa’s eco: What difference would a single currency make?

Wednesday, July 10, 2019

Fifteen countries in West Africa have agreed to adopt a single currency next year called the eco. Experts are divided on the impact it would have on the region’s economy, especially in the eight member states which use CFA franc - which is backed by France.

Negotiations for the joint currency have been in the works for 30 years.

The Economic Community of West African States (Ecowas), the region’s political and economic union, said the rollout will be gradual with countries meeting the laid-out criteria joining first.

Eight countries already use the CFA franc, which is pegged to the euro, and is guaranteed by France. The other seven have their own currencies, none of them freely convertible.

Proponents of the eco say the single currency will facilitate trade, lower transaction costs and facilitate payments amongst Ecowas’ 385 million people.

However, critics worry that Nigeria, the region’s biggest economy, will dominate monetary policy and stall the projected benefits.

 For economists Ferdinand Backoup and Daniel Ndoye, a single currency would prove a valuable instrument in the international monetary system:

A single currency can offer a chance, they say, to put up a “collective and effective front” against these disruptions.

It looks extremely unlikely that all 15 countries will meet this target.

The single currency was first planned to be introduced in 2003 but the launch has been postponed several times; in 2005, 2010 and 2014.

It is possible, although ambitious, that some countries will meet the current criteria for the 2020 deadline - the primary four being:

These criteria, along with two other secondary ones, are due to be assessed by Ecowas by the end of 2019.

One of the problems is inconsistency: countries could, for example, meet the criteria next year, and then fall behind the following year.

 In 2016, only one country, Liberia, met all the six conditions, and no single criterion was met by all the countries.

Economist Martial Belinga, author of Liberate Africa From Monetary Slavery, says 2020 is a symbolic goal.

Ecowas has said adoption would be gradual though, so the countries that do meet the criteria can join, and the others can follow later.

If the goal is to boost trade, some analysts are sceptical that a single currency is key.

Currently, most countries rely on commodities whose prices are regulated on international markets.

For the economist, the single currency isn’t “an end in itself”.

Although talk of a political federation has not dominated the latest discussions, critics point at pitfalls of running a joint currency without a political union.

A Guest Editorial