IMPORTANCE OF SINGLE CURRENCY TO THE SUB-REGION

One  of  the  most  significant  developments  in  West  Africa  over  the  last  three decades  has  been  the  formation  of  Economic  Community  of  West  African  States  (ECOWAS)  in  1975.  The  main  objective  of  ECOWAS  was  to  create  an  economic  and  monetary  union  for  promoting  economic  growth  and  development  in  the  West  African  sub-region. These  included, the  elimination  of  tariffs  and  quotas  on  the  import  and  export  of  goods  between  member  countries,  the  establishment  of  a  common  external tariff, the abolition of obstacles to the free movement of people, services and capital between member states and the establishment of common policies for agriculture and transport.

This article   presents the importance of West African Monetary Institution to   the economic growth on member states. The importance of international monetary cooperation has been recognized for a long time in West Africa. A regional central monetary institution is envisaged to harmonize economic and monetary policies, liberalize trade in the region, supervise members’ balance of payments, provide members with better access to the resources  of  the  primary  international  institutions  and  also  offer  the  community  a  better  instrument  at  the  world’s  collective  bargaining  table.  A  special  function  of  such  an  institution  would  be  to  offer  advice  and  guidance  to  the  whole  region  on  monetary  matters  on  the  basis  of  the  study  of  the  special  conditions  and  needs  of  the  community. 

The Eco is the proposed name for the common currency that the West African Monetary Zone (WAMZ) plans to introduce in the framework of Economic Community of West African States (ECOWAS). For the Eco to be implemented, ten convergence criteria, set out by the West African Monetary Institute (WAMI), must be met. These criteria are divided into four primary and six secondary criteria. 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.  The six secondary criteria to be achieved by each member country are: 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.

Similar to the euro in the EU, ECO currency will be shared by all the 15 member states nations of ECOWAS – Economic Community of West Africa States. It is expected to debut in January 2020. The single currency will facilitate trade, lower transaction costs and facilitate payments amongst Ecowas’ 385 million people.

The switch to the Eco is expected to provide a stimulus for bilateral trade between member states in WAMZ. One  factor  behind  the  bilateral  trade  expansion  is  the  elimination  of  transaction  costs  that  constitute  a  non-tariff barrier  to  foreign  trade.