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Home Business News Politics

Eco currency: Collaboration is crucial for success

CSL Stockbrokers by CSL Stockbrokers
June 25, 2020
in Politics
Eco
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Recently, President Muhammadu Buhari raised concerns over the decision of West African Monetary and Economic Union (also known under the French acronym, UEMOA) to take up the Eco in replacement for its CFA Franc ahead of other ECOWAS member states. According to the President, French ministers have approved a bill to reform the CFA Franc and most, if not all of the UEMOA member states, have already passed legislations in their various parliaments. He noted that the plan for the single currency (Eco) could be in serious jeopardy unless member states complied with agreed processes of reaching the collective goal.

We recall that in 2019, there were discussions by ECOWAS countries on the adoption of a single currency (Eco) by 2020. Currently, ECOWAS can be subdivided into sub-regional blocs namely; West African Monetary Zone (WAMZ) and West African Monetary and Economic Union (UEMOA). On one hand, WAMZ is a West-African economic and integration organisation made up of five English-speaking countries (Nigeria, Ghana, Gambia, Liberia, and Sierra Leone) and one French-speaking country (Guinea).

The WAMZ was established mainly to come up with a single currency in West Africa for all ECOWAS member states. On the other hand, UEMOA is a customs union with a common external tariff and a common currency (CFA franc). It is composed of eight, mainly francophone countries (Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo) that work together towards greater regional integration. Essentially, the “Eco” is the proposed common currency that will be adopted by both WAMZ and UEMOA across the ECOWAS states.

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Proponents of the Eco believe the existence of different exchange regimes in the region impedes trade within the region due to high transaction costs particularly from fees for currency conversion and hedging costs to cover exchange rate risk. With the AfCFTA agreement set to eliminate tariffs on goods and services, we think the adoption of a single currency, if successful, will facilitate trade, lower transaction costs and facilitate payments among ECOWAS countries.

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In our view, the main challenge in the adoption of a single currency stems from the fact that all participating countries will have to relegate the independence of monetary authorities to a regional monetary body to be established. With countries like Nigeria, Liberia and Sierra Leone still confronted with double-digit inflation, which is in stark contrast to the single-digit inflation rate required by participating countries, relegating monetary authority to a regional body may become knotty.


@Copyright CSL STOCKBROKERS LIMITED, 2020. All rights reserved.

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