Money talks

In late June 2019, the Economic Community of West African States (ECOWAS) announced that the bloc’s future single currency would be called the eco, and that different denominations of the eco would change hands for the first time in 2020. The eco will effectively phase out the West African CFA franc, which has been in circulation since 1945 in Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo. The coming circulation of the eco will also weaken the last post-colonial ties between West Africa and France, though Banque de France will continue to serve as the guarantor of the convertibility between the new West African currency and the euro.

Aside from anti-colonial sentiments, there is a good case for the eco. Using a single currency across the ECOWAS region—which also includes Africa’s largest economic powerhouse, Nigeria—will facilitate trade considerably, allowing the member states to focus on what they are best at, while feeling safe in the knowledge that their goods and services can be exchanged easily across the bloc.
The idea of a single currency in West Africa was conceived some 20 years ago with the launch of the West African Monetary Institute (WAMI) in 2000. Nigeria, as a one of WAMI’s five founding members, was keen to join a unified West African monetary zone, despite not using the CFA franc. In 2001, WAMI’s headquarter was set up in Accra, Ghana, in the hope that the institute would be a forerunner for a West African central bank—much like the European Monetary Institute in Frankfurt that later transformed into the European Central Bank (ECB).
Things did not go entirely according to plan. The launch of the single currency was canceled repeatedly in 2003, 2005, 2010, 2014, and 2015, at times promoting some economic commentators to question its feasibility. Part of the problem is that all ECOWAS countries must meet a number of criteria related to monetary governance and exchange regulation before adopting the new currency. Some of the primary convergence criteria proposed by WAMI include having a single-digit inflation rate, a fiscal deficit not more than 4% of the GDP, and enough gross external reserve to cover the government’s spending for over three months. There are also a number of secondary criteria for aspiring members that include, but are not limited to, having tax revenues in excess of 20% of GDP, a fairly stable exchange rate against global anchor currencies, and having a positive bank interest rate after adjustment for inflation. While Nigeria and, to a lesser extent, nations such as Ghana meet most of the aforesaid criteria, the club of West African CFA franc users is not in a promising position to swap the old currency for the eco, especially when it comes to harnessing inflation and systematizing the collection and spending of tax.
A simple comparison between the GDPs of ECOWAS nations proves fairly revealing. While Nigeria’s GDP in 2019 was USD397 billion, the GDPs of Burkina Faso, Guinea, Benin, and Niger barely came close to USD11-12 billion. Liberia’s GDP was just over USD2 billion. Although this difference in the size of the economies is not necessarily a death sentence for the eco, it indicates the size of the required preparations.
It is perhaps in light of these concerns—or more accurately in their shadow—that the African Development Bank Group (AfDB) believes it is unlikely the eco will be launched in 2020, unless ECOWAS countries take serious steps to align their monetary policies, as well as enforce such policies within their borders. This, however, should not discourage the region from pursuing the idea of launching a single West African currency, as the eco will undoubtedly make West Africa more integrated and conducive to all business enterprises.