Critical Perspective of ECOWAS ECO Currency in 2020
For nineteen years now, Heads of Government of West African governments have muted a single currency for the purpose of regional trade, in the West Africa sub-region.
Due to lingering deficiency in meeting the criteria for the launch of the ECO currency, the launch has been postponed three times: from 2013 to 2014 to 2015 to 2020.
While the optimists say the ECO currency could be realized in six-month time, making allusion to the just concluded 55th Ordinary Session of the block held in Abuja over the weekend, where the Ivory Coast’s Finance Minister, Adama Kone, stated: “At a ministerial level, we’ve established a road-map for the establishment of a new currency,”, there is a pessimistic view which seems to be more logical and more comprehensive.
To be fair to the optimist, intra-bloc trade relations and overall integration can be enhanced with the use of a single currency as could be seen in more developed economies like the Europe and America.
While this initiative might seem like a good idea on the outside, it is important that several other factors be considered ahead of implementation.
The goal of a common currency for ECOWAS was officially stated in December 2000 in connection with the formal launch of West African Monetary Zone (WAMZ).
However, challenges to implementation of the proposal have lied on member-countries meeting the criteria for the launch.
The four primary criteria to be achieved by each member country are: a single-digit inflation rate at the end of each year; a fiscal deficit of no more than 4% of the GDP; a central bank deficit-financing of no more than 10% of the previous year’s tax revenues and Gross external reserves that can give import cover for a minimum of three months.
There are other six secondary criteria to be achieved by each member country—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.
It is the deficiency in meeting those criteria that has delayed the launch.
Authorities of West African states have taken some deft moves to realise this lofty ambition but the problem has been with the individual countries’ handling of their respective economies and their collective willingness to dissolve their hard-earned efforts into other economies that are definitely not doing so well.
In 2001, the West African Monetary Institute (WAMI) was set up with headquarters in Accra, Ghana. It is to be an interim organisation in preparation for the future West African Central Bank. Its function and organisation are inspired by the European Monetary Institute. Thus, WAMI is to provide a framework for central banks in the WAMZ to start the integration and begin preliminary preparations for the printing and minting of the physical currency , just as EMI did before in the Eurozone before the introduction of the euro.
One issue with the idea of a single currency is the huge disparity in the economic strength of every individual country in West Africa. A single currency will make it impossible for countries to control monetary policy, exchange and interest rates in order to respond adequately to economic conditions at the individual level.
Furthermore, granting external bodies the right to dictate fiscal policy may deprive apex monetary institutions like the Central Bank of Nigeria (CBN) and the Bank of Ghana (BoG) the freedom to formulate and implement significant economic decisions. This is a threat to their sovereignty.
As far as regional trade goes, having a single currency would not have much effect without putting in place other necessary inputs needed for a truly robust regional trade such as infrastructure.
There is a view that the common currency on its own will not necessarily make doing business any easier than it is now. If policymakers see the single currency as the magic wand for boosting intra regional trade, they will be disappointed. This is according to Adewunmi Emoruwa, a policy analyst told Al Jazeera.
A case study of where this policy was equally implemented is the European Union (EU). Although it appears like a huge success and an exemplary feat worthy of emulation by other regional bodies, the New Yorker reports that not only did the idea fail, it left most countries with low growth, high unemployment and popular disaffection. This is despite the level of advancement in EU member countries.
If any lesson is to be learnt from the case of EU’s single currency challenges, it is that an idea, no matter how brilliant, cannot be truly successful without the right institutions to sustain it after implementation.
To be realistic, West Africa (nor Africa) does not even have solid institutions or policies to properly implement and sustain a single currency, and is still a long way down in the ladder of economic integration.