A single West African currency
For about two decades now, West African countries have been championing the integration of their economies. This should be prominently resulting in a regional economic powerhouse. It is ultimately expected to be harmonised into an economic zone with a common currency.
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Formed in May 28, 1975, 15 countries of West Africa signed a treaty to form the Economic Community of West African States (ECOWAS) in Lagos, Nigeria, with a protocol drafted by Nigeria and Togo being approved after some deliberations in 1976.
The treaty tabled a 15-year time frame for the crashing of trade barriers between member states and the setting up of a common external tariff.
Explicitly, the objectives of the economic community was to promote and develop economic activities in all the states, especially in transportation, agriculture and in other spheres of development such as social and cultural matters for the decisive aim of improving upon the standard of living of the peoples in the West African States.
The treaty saliently bordered on the following;
1. The removal of barriers for the free movement of people, goods, services and capital among member states.
2. The elimination of tariffs and other trade restrictions among member states.
3. The institutionalisation of common tariff structure and commercial policy towards non-member nations.
4. Steady harmonisation of the agricultural and industrial policies of member states.
5. A determined plan to advance on an intra-West African transport and communication network, energy and other infrastructural amenities.
6. To harmonise the monetary policies of the member states.
Benefits of a single Monetary Union
The principal advantages expected to be derived from a single monetary union among others included the ease or the flexibility of labour, capital and resource mobility within the ECOWAS zone.
Expectations also envisaged are the enhancement and acceleration of the sub-regional payment system under the West African Clearing House (WACH), the promotion of West African intra-regional business and trade; and an aggregation of the economies of scale in monetary management and business transaction and operational outlays.
It is worthy to note that strategically, the last objective of the union in harmonising the monetary policies of member countries culminated in the formation of the West African Monetary Zone (WAMZ) and the establishment of the West African Central Bank (WACB).
The formation of the West African Monetary Zone agenda was to quicken the pace of economic and monetary integration in the West Africa Zone. This was sanctioned by the heads of state and the governments of ECOWAS at its meeting in Lome, Togo, in December, 1999.
Conspicuously, it was at this meeting that the WAMZ idea was agreed upon to gradually merge with the West African Economic Monetary Union (WAEMU) to form a single ECOWAS Monetary Union.
Thus a year after in December 2000, the five-member founder countries of The Gambia, Ghana, Guinea, Nigeria and Sierra Leone instituted the West African Monetary Institute (WAMI) to undertake technical and policy preparations for the launch of the WAMZ that became optional afterwards. Interestingly, Cape Verde and Liberia were observer states then, but Liberia became a full member of the Union in February 2010.
Indeed, the primary aim to safeguard WAMZ’s existence was to issue a common currency to be used within the Anglophone states. These are indeed states that are outside of the CFA France Zone.
Previous and current agenda
To succeed at the aims and objectives of the Union, the EMCP tailored a number of macroeconomics convergence criteria for participating countries to attain before the start of the monetary union.
Towards a single currency status, each WAMZ member state had to be consistent in achieving macroeconomic targets before the monetary union could be actualised.
Among the macroeconomic goals for realising a single currency status, was that, tax revenue as a ratio of Gross Domestic Product (GDP) should be at least 20 per cent. That public investment from tax receipt should exceed 20 per cent.
There was also no accumulation of domestic arrears as wage bill, as a ratio of total tax revenue should not have been more than 35 per cent. Exchange rate of the domestic currency should have remained within a fluctuation band of ±15 per cent and real interest rate was to be positive.
In addition, member states had to have a single digit inflation figure, gross external reserves per months of import cover should have been greater or equal to three months; and that, fiscal deficit per GDP ratio should have been less than or equal to four per cent, while the central bank financing of fiscal deficit as a percentage of previous year’s tax revenue should have been at least 10 per cent.
However, the challenges met under the implementation of the ECO, the proposed single currency, have never made it possible for the Anglophone West African single currency to see any fruition. This has called for redirection and a new agenda for 2020. The ECO is no more going to be pursued.
Audaciously, the mere fact that different exchange regimes exist in a very small economic area does not efficiently promote trade between countries. This is as a result of the high transaction cost complexities.
For instance, insurance costs suffered by importers and exporters to cover exchange risks and the fees for currency conversions are all not the same. Again, the indecisions associated with the volatility of exchange rates, cripples the fortunes of stable foreign capital and investments over the medium to long term for currencies not tied to an international currency.
This automatically results in complications related to the reliability of foreign exchange guidelines.
