Unified West African currency versus the Euro
By Eric Ogho Imene
For anything worth having one must pay the price; and the price is always work, patience, love, self-sacrifice - no paper currency, no promises to pay, but the gold of real service.
The need for a unified currency for West African countries is borne out of its many years of economic ties since the formation of the Economic Community of West African States ECOWAS on 28 May 1975 through a Treaty signed in Lagos Nigeria. Nigerian Head of State Yakubu Gowon was the first President of ECOWAS between 28 May 1975 and 29 July 1975
ECOWAS has 15 member states as at February 2017. There are 5 English-speaking, 8 French-speaking, and two Portuguese-speaking members. The countries within the bloc occupy an area of 5,114,162 km and an estimated population of over 350 million. The main goal of the bloc is to achieve “collective self-sufficiency” through the formation and preservation of a common trade block and the maintenance of a joint peacekeeping force for regional stability. Peacekeeping efforts were successfully carried out in Ivory Coast in 2003, Liberia in 2003, Guinea-Bissau in 2012, Mali in 2013 and there was an intervention in Gambia in 2017 that forestalled impending crises. The operations of ECOWAS are implemented in three cooperating languages— English, French and Portuguese
Over time, ECOWAS established institutions such as the Community Court of Justice, ECOWAS Bank for Investment and Development (EBID), ECOWAS Commission, the Inter-Governmental Action Group against Money Laundering and Terrorism Financing in West Africa (GIABA) Community Parliament and the West African Health Organization (WAHO).
The West African Economic and Monetary Union (also known as UEMOA from its name in French, Union économique et monétaire ouest-africaine) is an organization of eight, mainly francophone West African states within the ECOWAS, that were dominated otherwise by anglophone heavyweights like Nigeria and Ghana.1 It was established to promote economic integration among members through a Treaty signed in Dakar Senegal on 10 January 1994 by the heads of state and governments of French -speaking West African countries such as Niger, Benin, Cote d`Ivoire, Burkina Faso, Mali, Togo and Senegal. It was joined by Portuguese-speaking Guinea-Bissau on 2 May 1997 as the eight members of the body.
Its detailed objectives are “Greater economic competitiveness, through open markets, in addition to the rationalization and harmonization of the legal environment, The convergence of macro-economic policies and indicators, the creation of a common market, the co-ordination of sectoral policies and the harmonization of fiscal policies.”2
In year 2000 another five member states made up of Nigeria, Ghana, Gambia, Guinea, Sierra-Leone formed the West African Monetary Zone (WAMZ) with the aim of introducing a common currency known as called the Eco to rival the CFA franc. Liberia joined on 16 February 2010. WAMZ and UENOA have the ultimate goal to merge and form the single currency known as Eco. The CFA will close ties with France and the euro which pegged it. France has over-riding influence and guardianship since 1948 through to 1994 when it was devalued by 50% to boost exports from the region. After the devaluation, 1 French franc was worth 100 CFA and when the French currency joined the euro zone, the fixed rate became 1 euro to 656 CFA francs.3
Now the Eco currency is expected to take off in 2020. However, conditions for its take off are stringent. Members must have a deficit of less than 3 percent of gross domestic product, inflation of 10 percent or under and debts worth less than 70 percent of GDP. It is believed that the conditions will be difficult to meet and risky for the regional economy mostly dominated by Nigeria`s currency, which accounts for two-thirds of the region's economic output.
In comparison to the criteria for joining the euro zone, European countries need to fulfill 4 criteria such as
1. Maintenance of Price stability - The inflation rate of the intending country cannot be higher than 1.5 percentage points above the rate of the 3 best-performing member states.
2. Reliable and Sound and sustainable public finances - Government deficit cannot be higher than 3% of GDP. On the other hand, the debt of Government must not be higher than 60% of GDP.
3. Stable Exchange-rate -The candidate has to participate in the exchange rate mechanism (ERM II) for at least 2 years without strong deviations from the ERM II central rate and without devaluing its currency's bilateral central rate against the euro in the same period.
4. Long-term interest rates -The long-term interest rate should not be higher than 2 percentage points above the rate of the 3 best-performing member states in terms of price stability.
5. Finally, Candidates intending to join the euro zone must ensure that the laws of their respective countries fully supports the independence of their national central banks. Furthermore, their statutes must comply with the provisions of the treaties and compatible with the statutes of the European Central Bank (EBC) and the European System of Central Banks (ESCB).4
How was the euro zone formed
In contract to the formation of WAMZ and UENOA, Eurozone was formed in 1998 by eleven member states of the European Union and the euro was officially launched as a common legal tender on 1 January 1999. In the following year, Greece qualified for membership and was officially admitted on 1 January 2001. Membership of the euro zone is currently 19 out of the 28 member states. They include Belgium, Austria, Cyprus, Finland, France, Estonia, Germany, Greece, Italy, Latvia, Ireland, Lithuania, Luxembourg, Malta, Slovakia, the Netherlands, Spain, Portugal and Slovenia. The other nine members of the European Union that are currently not using the euro are Romania, Croatia, Bulgaria, Czech Republic, Sweden, Denmark, Hungary, Poland, and the United Kingdom. The United Kingdom is warming up to Brexit.
Benefits of common currency
A common currency guarantees more opportunities at making choices and stabilizing prices for consumers and companies. In the absence of a common currency, exchanging currencies comes with extra costs and the risk factors of transparency especially when transactions are done across borders. A single currency brings about cost/effectiveness in the course of doing business.
The companies will have stronger securities especially in the prices of raw materials.
It promotes unity and a better sense of belonging.
The economy is more stable and growth could easily be measured. Furthermore, the ability to compare prices encourages cross-border trade and investment either for the individual seeking cost-effectiveness or for the company seeking cost-effectiveness, value and profitability. Purchasing rates are less fluctuating because of one large integrated market using the same currency and bringing about new incentives and resilience to economic shock especially because of the wide geographical strength.
A common currency gives more visibility and promotes healthy competition in the global market. This is because economic integration comes with new strength and efficiency. The scale of the single currency makes the region or area more attractive to do business. For third countries, earning foreign currencies with higher value promotes export while buying raw materials for industrial companies are mostly cheaper for countries from the European Union. This brings about prudent economic management and a more powerful voice in the global economy.
Single currency has become a necessary economic instrument for the simultaneous development of a group of countries within a geographical space. Members are easily cushioned by the support and strength of bigger economies. For example when strong economies like Germany use the same currency with a weaker economy like Latvia or Greece, the weaker countries pursue a standard which is the result of a generally set goal for member states as the economy is regulated as a set of group. It is the same situation when a bigger economy like Nigeria uses the same currency with weaker economies like Gambia and Liberia. In all of these, it brings about faster regional development.
Since none of the ECOWAS members have been able to meet the criteria to commence the Eco currency, member states should focus on driving their respective economies through massive production.
ECOWAS countries must avoid external borrowing but improve their external reserves. Borrowing with interest will deplete the economy and cause growth crises.
No external country or institution must be members of the Banking system or governance of the single country countries as France did with former French colonies who use the French franc while the governance and half of the foreign reserves are kept in Paris.
European Commission, c.europa.eu/info/business-economy-euro/euro-area/benefits-euro_enFau-
Nougaret (ed.), Matthieu (2012). "La concurrence des organisations régionales en Afrique". Paris: L'Harmattan.
Reuter, West Africa renames CFA franc but keeps it pegged to euro 21 December 2019
The International Development Research Center, http://www.idrc.ca/en/ev-68350-201-1-DO_TOPIC.html
1 Fau-Nougaret (ed.), Matthieu (2012). "La concurrence des organisations régionales en Afrique". Paris: L'Harmattan.
2 The International Development Research Center, http://www.idrc.ca/en/ev-68350-201-1-DO_TOPIC.html
3 Reuter, West Africa renames CFA franc but keeps it pegged to euro 21 December 2019
4 European Commission, c.europa.eu/info/business-economy-euro/euro-area/benefits-euro_en
- Quote paper
- Eric Ogho Imene (Author), 2020, Unified West African currency versus the Euro, Munich, GRIN Verlag, https://www.grin.com/document/513640