Obinna Chima examines efforts towards attaining the single currency objective in the West African sub-region
Since 1987 when the Economic Community of West African States (ECOWAS) Monitoring Cooperation Program (EMCP), saddled with the responsibility of introducing a common currency in the sub-region, was adopted, the body has continued to push for the implementation of the policy.
Those involved in this project strongly believe that a common currency for the West African Monetary Zone (WAMZ) would facilitate trade in the region and also stimulate growth.
The proposed currency, which has been christened ‘eco,’ according to the plan, will be initially introduced in the member countries of WAMZ.
Just like the euro, which is the single currency shared by some European Union's member states, countries in West Africa expected to use the common currency include Ghana, Nigeria, Sierra Leone, Gambia, Guinea, Liberia, Benin, Togo, Cote d'Ivoire, Niger, Mauritania, Senegal, Burkina Faso, and Mali.
Unfortunately, the drive towards adopting the policy in West Africa that was originally fixed for 2013, has over the years, been confronted with a lot of challenges. The policy has been postponed four times largely because of “mixed” progress among member countries in attaining the set criteria. The new target is 2020.
Relaxing convergence requirements
The ECOWAS Commission recently resolved to reduce the macroeconomic convergence criteria among member states to six from the initial 11 in order to hasten the actualisation of the single currency project by 2020.
The commission said it realised the 2015 deadline for take-off of the single currency regime was no longer feasible.
According to the acting Director, Multilateral Survellance, ECOWAS Commission, Dr. Nelson Magbagbeola, the requirements have now been scaled down to six including three primary and three secondary conditions.
He said the new primary criteria demand that every member-country's budget deficit including grants and on commitment basis should not be more than three percent of gross domestic product (GDP) while the average annual inflation should be single-digit with a long term goal of not more than five per cent by 2019 as well as gross reserves of not less than three months of imports.
He said the body also resolved that for the secondary criteria, the public debt to GDP ratio should not be more than 70 per cent while central bank financing of budget deficit should also not be more than 10 per cent of previous year's tax revenue and that nominal exchange rate variation should be within +/- 10 percent.
However, Nigeria is said to be the only country which has so far met all primary convergence criteria.
It was also gathered that the African Heads of States and government had approved the abolition of the residence permit which is to be replaced by the biometric identity card for the community citizens.
To this effect, ministers in charge of security have been advised to review all security implications of the measure before the signing of the Supplementary Acts on the resolutions.
Magbagbeola also said the ECOWAS authority agreed that the West African Monetary Agency (WAMA) and West African Monetary Institute (WAMI) should be retained subject to the re- definition of their roles pending the creation of an ECOWAS Monetary Institute by 2018 in line with its roadmap.
On his part, the Minister of State for Finance, Alhaji Bashir Yuguda admitted that meeting the set criteria had often posed a challenge given that member countries have peculiar economies with varying challenges.
He noted that the recent rebasing of the Nigerian economy particularly posed a challenge of sustainability of parameters.
But he said efforts must be made to surmount all barriers and meet the parameters if the single currency project must be achieved within the specified timeframe.
He said the federal government on its part attaches great importance to the proposed monetary union which he described as the last stage of any union in the region.
He however expressed optimism that with the reality that the region needed to emerge as an economic block coupled with the commitment from political leaders, the single currency drive could become a reality.
"We need to look at the realities on ground; we are talking about monetary union and we are talking about six different countries- their economies are different and the challenges are different or maybe similar,” he added.
How beneficial is the policy?
The Regional Head of Research, Africa, Global Research, Standard Chartered Bank, Razia Khan, argued that a single currency in the region could reduce transaction costs.
She added: “A monetary union alone may not be enough to credibly achieve a single currency. Increasingly, it is now recognised that a fiscal union will also be needed.
“It is worth aspiring to, even if it doesn't happen just yet. The convergence criteria are still worthwhile economic aims, and if it ever did happen, it would lessen transaction costs and boost trade.
“ECOWAS should keep trying, but they should not put it into practice unless everything is in place. They don't need to fudge the convergence criteria as that will only cause problems later. Look at Italy.”
However, a Senior Analyst at BGL Securities Limited, Mr. Femi Adeola noted that there is need for honesty among member states, for the policy to succeed.
According to him, if ECOWAS members can be honest to say the situation in their countries, the common currency idea will work.
He said: “It is very difficult, but it is not impossible. But countries must have accurate data on their economies and there is also need for fiscal union.”
On his part, an international analyst, Srinivasa Madhur, in a paper titled: “Costs and Benefits of a Common Currency,” said the key economic cost in formation of a currency union by a group of countries is the loss of national autonomy in monetary policy.
He added: “The major benefit of a common currency that has been emphasised is that it facilitates trade (in both goods and services) and investment among the countries of the union (and hence increases income growth within the region) by reducing transaction costs in cross-border business, and removing volatility in exchange rates across the union.
“A currency is like language. As a common language facilitates effective communication among people, a common currency could promote trade and investment among countries. In an environment of different currencies, transaction costs, including the costs of obtaining information about prices, would be higher.”
However, Samir Gadio pointed out that the project of a common currency in ECOWAS is a good idea.
Gadio however noted that the structural differences among ECOWAS countries may hamper the dream of a single currency.
“First, the size of Nigeria's economy compared to ECOWAS peers implies that smaller countries will have little say in exchange rate and monetary policy decisions. As a result, they will be worried about a loss of sovereignty should ECOWAS launch a common currency,” he added.
But a financial market analyst, Mr. Chijioke Obiagwu argued that the sub-region is not ripe to have a common currency.
He urged policy makers in the region to develop the volume of trade among member states.
On her part, Central Bank of Nigeria (CBN) Deputy Governor, Economic Policy, Dr. Sarah Alade explained that current emphasis would be on the state of preparedness of member countries for the monetary union.
She explained:"We all have challenges and you know that it hasn't been easy. Countries have been going through difficult times and that's why it hasn't been possible to meet the convergence criteria from year to year.
“This year you have a country meeting all the four convergence criteria and another year, that same country meets only three. We had insisted that we needed it met from year to year."
Therefore, in order to avoid shifting the target year again, there is need for seriousness and more collective efforts towards the actualisation of the policy by countries in the sub-region.
In addition, member states would have to double their efforts in strengthening fiscal performance through enhanced domestic revenue mobilisation and rationalising public expenditure.