The eco is intended to help the West African region’s economic growth and cross-border trade. Twenty years ago, in Ghana, six officials from West African governments announced their desire to move toward financial unification among the region’s non-CFA franc countries. By 2004, the monetary union was to have extended to all states in the ECOWAS area as a first stage. The goal of the union was, and still is, to limit central bank funding of budget deficits to 10%. The member states made a clear declaration that a strong political engagement, such as national policies, would help the regional monetary economic integration.
The Eco is the suggested name for the single or shared currency that the West African Monetary Zone (WAMZ) intends to implement under the ECOWAS framework. WAMZ and the West African Economic and Monetary Union will both implement one currency throughout the ECOWAS states. The Eco will stay linked to the Euro under the planned unified currency. Even though African countries will not maintain 50 per cent of their deposits in the French Treasury and a French official will no longer be necessary on the currency union’s board, it is also necessary to consider the implications for former French Colonies, with the exception of Guinea Bissau, that is also members of the currency union.
The introduction and adoption of the Eco would also signal the end of the CFA franc. Several financial agreements between UEMOA nations and France will be modified as a result of the developments.
Benefits and Challenges
The existence of various exchange rate regimes in the area, according to proponents of the single currency, impedes commerce. This is owing to high transaction costs, notably currency conversion fees and exchange rate risk hedging expenses. It is also worth mentioning the difficulties encountered during the installation procedure.
The introduction of a common currency, when it is done properly, will simplify commerce, cut transaction costs and facilitate payments across ECOWAS countries, under the agreement scheduled to abolish tariffs on products and services, as they are deterring the cooperation process.
Countries in the area would be able to transfer and waste cash without worrying about exchange rate expenses if the agreement is adopted. To begin with, the region’s currency rates are rather unpredictable. A case of the single currency or regional integration will assist in addressing the issue of numerous currencies and exchange rate movements that influence intra-regional commerce, thereby reinforcing the necessity for a single currency to be adopted.
Moreover, if one currency is implemented effectively, it is expected to have enormous potential allowing each country to concentrate on production. This will also enable a seamless flow of products between member-states, allowing for more efficient production and lower transaction costs.
It’s also critical to understand that economic advantages from a single currency aren’t mutually exclusive with infrastructural development, especially because intraregional commerce is one of Eco’s most sought-after benefits. Despite these potential advantages, proponents of integration are concerned about the lack of integration. It is often thought that having a common currency will function if all nations are economically linked in order to avoid future economic isolation, as the European Union has already experienced.
The UK’s exit from the EU was primarily motivated by a desire for independence in areas such as commerce, agriculture, tariffs, and immigration, among other things. Nigeria as the region’s largest economy raises similar worries since it has the ability to dominate monetary policy and stymies the expected benefits of the union. Even though the currency exchange is quite active in the country through the development of the financial industries, which is vivid due to the increased popularity and demand for the Nigerian Forex trading brokers online, that are providing people with proper services. Certain could argue that economic congruence isn’t always a need for the adoption of a single currency, as in the case of the EU, where some nations have received assistance from Germany and France, demonstrating that some countries are both providers and beneficiaries in the union.
The same argument may likewise be applied to nations in the ECOWAS area that may be prospective donors and beneficiaries. Is it true, for example, that having a higher GDP than other states means you’ll be the one footing the bill if the union fails to deliver the promised benefits? The Guinean economy has a GDP of approximately $7 billion, which is significantly smaller than Nigeria’s 13th biggest state, which has a GDP of around $8.7 billion, making a logically consistent policy difficult to implement. Each country would have to fulfill 10 convergence requirements in order for the Eco to be adopted. The West African Monetary Institute has laid forth these main needs.
Only Ghana had ever met all of the major requirements in a single fiscal year until the 2011 fiscal year. This would be seen by critics of the monetary union as a symptom of a shoddy implementation procedure. On the other hand, Nigeria, which is a country with high inflation but with an oil-dependent economy, is also utterly sensitive to the economic events going around the world. It means that there will a significant economic difference in the union if the agreement was implemented.
The potential
For openers, just five of the fifteen nations in the area now fulfill the single currency’s standards of having a budget shortfall of no more than 4% and an inflation rate of no more than 5%, while the debt percentage no more than 70% of GDP. This appears to be a severe convergence requirement for joining the single currency, which has proven to be a big obstacle for the currency’s introduction and very certainly won’t be reached by most nations this year.
While the goal of this monetary union is obvious, it is important to highlight that adopting a common currency would not solve the significant internal issues that the member nations are now experiencing. Instead of rushing to reach a monetary union timetable, member countries should focus their efforts now, more than ever, on maintaining convergence on low inflation, stable fiscal policies, and fundamental policies that promote long-term growth. If West African nations can enhance intra-regional commerce, foreign investment, and job creation, they will definitely be able to meet the convergence requirements outlined above.
Much of the criticism arises from the notion that how can a single currency adoption work if products in the region cannot travel freely? As a result, the creation of Trade Agreements such as the AfCFTA will facilitate the free movement of products and services among African countries.
Clearly, the Eco will not be the only answer to West Africa’s increasing challenges, but there is reason to be optimistic about the region’s success in accepting and using its new unified currency. The hope is also based on the fact that the currency has the ability to address the region’s monetary issues, such as the difficulties in exchanging some of the continent’s currencies and central banks’ lack of independence.
The year 2020 has a great deal of promise for Africa’s growth. Not only are we witnessing the adoption of a single currency, but key events such as the AfCFTA, not to mention the planned establishment of a Cocoa Cartel by two Cocoa behemoths, Ghana and the Ivory Coast, give us reason to believe that Africa is on the rise. Given that legislation reforming the Eco only has until the end of September 2020 to get through the French national assembly, the decision to adopt the Eco does not risk doing so before October 2020. Due to the impact of the Coronavirus epidemic, the adoption of the Eco may be postponed by 5 years.
