Harmonise international payment systems to achieve West African single currency

The Chief Executive Officer (CEO) of First Atlantic Bank, Mr Gaby Edgal, has stressed the need for ECOWAS countries to first concentrate more on financial integration in their quest to achieve a single currency.
This, he said, calls for the harmonisation of various payment systems in the sub-region.

Speaking to the Graphic Business in an interview, Mr Edgal said the Ghana interbank settlement system should be linked and integrated into the UEMOA interbank system or the Nigeria Interbank System.

The FirstAtlantic Bank boss also indicated that banks, such as his, were ready to work as facilitators for payments and commissions across the two countries and other countries in the sub-region.

Risk

It is so risky for people to do business without channelling funds through the formal system because of the lack of a common currency.

Many traders and businesses are noted for carrying large sums of money across borders to trade. The other aspect of it is that, the business- man from the orginating country as well as the recipient country is unable to keep records of the movements of the money.

Against this background, he said banks had shown a lot of commitment to work with the banking regulators to ensure that “we can facilitate those payments”.

Mr Edgal added that what his bank had done was to form strategic alliance with banks  in Nigeria so that payments could be received between both countries.

He said the bank was poised to move all these payments and cash carrying into the formal system to enable proper record keeping and to eliminate the risk associated with carrying cash across borders.

The Eco

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).

After its introduction, the goal is to merge the new currency with the West African CFA franc (used by the French-speaking members of ECOWAS since 1945) at a later date. This will create a common currency for the sub region

The criteria

For the Eco to be implemented, 10 criteria set out by the West Africa Monetary Institute (WAMI) must be met.

These criteria are known as the Four Primary Convergence Criteria and Six Secondary Convergence Criteria.

Up to the fiscal year 2011, only Ghana had been able to meet all the primary criteria in any single fiscal year but this has slipped again.

The four Primary Criteria are

•           A single-digit inflation rate at the end of each year

•           A fiscal deficit of not more than four per cent of the GDP

•           A central bank deficit-financing of not more than 10 per cent of the previous year’s tax revenues

•           Gross external reserves of three months of import cover.

The six secondary criteria

•           Prohibition of new domestic default payments and liquidation of existing ones.

•           Tax revenue should be equal to or greater than 20 per cent of the GDP.

•           Wage bill to tax revenue equal to or less than 35 per cent.

•           Public investment to tax revenue equal to or greater than 20 per cent.

•           A stable real exchange rate.

•           A positive real interest rate.

Unfortunately, recent assessment of the efforts of member countries to meet the criteria continues to look very bleak but member countries continue to initiate various programmes to improve their economies to record sustained growth.

For instances, the performance scorecard presented at the 2012 Annual Statutory Meetings of the WAMZ shows that Gross Domestic Product (GDP) growth was projected to decline to 6.9 per cent in 2012 from 8.7 per cent in 2011.

The convergence scale of the whole WAMZ area was also projected to go down from a score of 79.2 per cent in 2011 to 62.5 per cent in 2012. However no member met all the convergence criteria.

The average annual inflation rate also increased from 11.6 per cent in 2011 to 12.6 per cent in 2012.

The Director of Multilateral Surveillance ECOWAS Commission, Mr Lassane Kabore, has been quoted to describe the performance of member states as "dismal" but he also affirmed the commitment of his commission to the establishment of the Eco.

By Charles Benoni Okine/Graphic Business/Ghana
Writer’s email: [email protected]