ECOWAS And The Dream of a Single Currency

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As the West African bloc once again discusses their proposed plan for a single currency, let’s talk about some of the details. Fifteen countries of the Economic Community of West African States (ECOWAS) announced 2027 as the new date to launch its single currency, the “Eco.”1 A single currency is a currency used by more than one country, a common example being the Euro.2 While the prospect of a single currency could ensure a more independent economy for Africa, there is a whole context of colonialism and exploitation around the issues of currency, power, and economic structures that dictate our quality of life.

Eight of the current 15 members of ECOWAS are Francophone countries and currently using the CFA franc. The CFA is a direct result of France’s colonial rule and was developed in 1945.3 The CFA is argued to be exploitative and unfair to the African states, as France requires 50% of the reserves to be kept in the French treasury.4 According to financial expert Iwa Salami, the introduction of the Eco will diminish France’s influence in the monetary union. France will no longer have representation on the monetary union board, meaning that countries that use the CFA will no longer  have half of their reserves held by the French treasury.

A single currency has a multitude of positives and here are just a few: countries and their respective industries won’t have to worry about exchange rate fluctuations because they all have the same currency. This also comes along with price transparency due to things all being marked the same price. Tourism would also flourish as neighbouring countries all hold the same note and this also encourages further regional trade, rather than relying as heavily on imports from outside the continent.5

Though it all sounds ideal, there are a few issues that could complicate the establishment of the Eco. For this to work an independent central bank is required to keep inflation down and keep the currency stable. This means that these 15 countries will have to relinquish control over to a central bank, meaning that they can’t locally tweak interest and inflation rates at will.6 African countries also must strengthen their political bonds and act more as a unit. A comparable system would be the Euro, however, the issue here is that Africa’s population is far more diverse on a regional level, and development that has continued unhindered in Europe has been disrupted in Africa due to the lingering effects of colonialism. And as we’ve seen with France, colonial ties can  continue way beyond the country’s independence.

The establishment of the Eco has been an ongoing conversation for years now, and one of the reasons it’s taken so long is that the countries in consideration are required to have single digit inflation rates and that criteria has only been met by Gambia, recording rates of 6.5% in 20187 and at  5.93% in 2020. While inter-regional trade would help build the African economy, Nigeria is one of the two net oil exporters in the bloc and a dip in international exports could be detrimental to the region as Nigeria accounts for 65% of the region’s GDP and 50% of the total population.8

If these countries can come to an agreement to pursue mass financial and political stability in the region, the Eco could be stable enough to run long term, but that stability must be established to give this new system a fighting stance. The successful implementation of the Eco could very well motivate the rest of Africa to follow suit and could be the first step to establishing a Pan Africa that puts its own interests first.

Footnotes

 

  1.  Deutsche Welle (www.dw.com), “ECOWAS: West African Bloc Aims to Launch Single Currency in 2027 | DW | 19.06.2021,” DW.COM, June 19, 2021, https://www.dw.com/en/Ecowas-west-african-bloc-aims-to-launch-single-currency-in-2027/a-57970299.
  2. “Single Currency Definition and Meaning | Collins English Dictionary,” Www.collinsdictionary.com, accessed July 2, 2021, https://www.collinsdictionary.com/dictionary/english/single-currency.
  3. Keanu Been, “End of the CFA Franc: A Possible Turning Point in Francafrique?,” Global Risk Insights, March 18, 2021, https://globalriskinsights.com/2021/03/end-of-the-cfa-franc-a-possible-turning-point-in-francafrique/.
  4. Iwa Salami, “Is the Time Right for a Single Currency in West Africa?,” The Africa Report.com, March 4, 2020, https://www.theafricareport.com/24170/is-the-time-right-for-a-single-currency-in-west-africa/.
  5. “Single Currency: Pros A& Cons,” 125mb.com, 2011, http://kokminglee.125mb.com/Economics/singlecurrency.html.
  6. Abdulrasheed Isah, “Why ECOWAS Needs the Eco,” The Republic, July 8, 2019, https://republic.com.ng/june-july-2019/why-Ecowas-needs-Eco/.
  7. Ibid
  8.  Isaac Mugabi, “West Africa’s Eco Currency Plan Remains a Pipe Dream | DW | 02.07.2021,” DW.COM, July 2, 2021, https://www.dw.com/en/west-africas-eco-currency-plan-remains-a-pipe-dream/a-58136111.