ECOWAS, the regional bloc of countries in West Africa, has just revived an old dream: adopting a single currency across member states.
After first broaching the idea at the turn of the millennium, the target launch date for the single currency has been postponed several times after initially being slated for 2003. The latest date to be agreed for the launch of the currency is 2020, with member states also agreeing to name it”ECO.”
A commonly held view as to why the policy is being contemplated is that governments in the region are keen on even more integration, in addition to existing visa-free travel. But just as it has been for much of the past two decades, there are currently too many stumbling blocks in the way.
For starters, only five (Cape Verde, Ivory Coast, Guinea, Senegal and Togo) of the region’s fifteen countries currently meet the single currency’s criteria of a budget deficit not higher than 4% and inflation rates of not more than 5%, notes Charlie Robertson, chief global economist at Renaissance Capital. And while ECOWAS say the integration will be gradual as countries meet the criteria, it’s unlikely that a 2020 launch date is feasible at all. Even though the date has been set, there is no significant progress as regards the design, production and testing of the currency notes.
Given that various economies in the region are at “dramatically different levels of development,” the leadership of ECOWAS is being unrealistic in both its timing for the currency’s launch and expectations of what it might achieve, Robertson says. “You’ve got very different levels of debt, interest rates and budget deficits. Trying to align these countries to operate as one is extremely difficult,” he says.
“What currency policy is right for two such divergent countries like say Ghana and Burkina Faso?”
Those disparities are also particularly highlighted by Nigeria’s economic size in the region. “Nigeria is 67% of ECOWAS’ GDP, so really this isn’t a single currency for 15 countries, this is the Nigerian naira plus a few countries,” Robertson says.
For its part, ECOWAS is keen to play up the hypothetical upside of a single currency possibly reducing the cost of trade across the bloc - but it does so while ignoring existing trade barriers.
As SBM Intel, a Lagos-based intelligence firm, notes in a research reporton the viability of the ECO, fixing underlying “structural issues” which hobble trade, including “inadequate supply chain infrastructure, arbitrary border tariffs and non-tariff barriers, abysmal corruption and wide-area insecurity” are all more viable solutions for boosting intra-bloc trade.
The French connection
In trying to create a single currency, ECOWAS will be looking to squash one which already exists: eight of its member states already use the France-backed the West African CFA franc. As part of a long-running monetary agreement, those countries deposit half of their foreign reserves with the French treasury. While the policy remains a subject of criticismin both African and European circles, untangling from such a complex and historic agreement will likely be a long and difficult process, says Cheta Nwanze, lead researcher at SBM Intel.
For Robertson, it’s “bizarre” that countries who use the French-backed currency will even consider revising their currency policy at all given the benefits of lower interest rates and currency stability.
“What’s been driving growth and investment in Cote d’Ivoire and Senegal in the last 10 years has been high investment because of low interest rates which come from a stable currency guaranteed by France,” he tells Quartz. “Why jeopardize that and align with countries with less stable currencies like Nigeria and Ghana and with much higher levels of inflation and interest rates?”