Africa-Press – Ghana. For over two decades, West African countries have had a project for a common currency, the Eco, to strengthen trade and regional integration. It has been promoted repeatedly, but so far, not launched. Aminata Niang asks why.
Since its creation, one of the main stated purposes of the Economic Community of West African States (ECOWAS) has been to create a common currency for its members.
The current target for the currency to launch in 2027. The Eco currency project is a test case for West Africa’s ambition for greater economic sovereignty and regional economic integration. The common currency project has been complicated by three main factors: differences in the economic realities of each country, the current use of different currencies, and the role that France could play in the future currency.
Diverging economies
The fifteen West African countries involved in the Eco currency project differ considerably in terms of economic power. This represents a significant handicap to agreeing on a monetary policy that accommodates all their different economies.
With a common currency, member countries must coordinate their monetary and fiscal policies. This means countries that are members of a common currency union must share an interest rate set by a regional central bank, and they can’t implement domestic monetary policies such as independently adjusting interest rates, If there is a huge difference in inflation rates, as is currently the case between Nigeria, Ghana and many of the CFA franc countries, it can be hard to find an interest rate that will suit everyone. Countries with higher borrowing levels would need to lower their spending to keep the shared currency stable. This trade-off may not be suitable for everyone. These issues have already been seen in the Eurozone, with differences in real interest rates (interest rates after adjusting for inflation) leading to amplification of booms and busts in the member countries’ economic cycles. For example, in the early 2000s, low eurozone interest rates stimulated Spain’s booming economy but simultaneously weakened Germany’s stagnant one.
The fifteen countries of the Eco have different economic structures. They can be divided into three types: First, Sahelian economies such as Burkina Faso, Mali, or Niger, whose agricultural activities mainly depend on climate conditions and are specialised in the production of raw materials such as cotton. Second, coastal countries like Côte d’Ivoire and Senegal have more industrialised economies and invest a lot in service activities. Third, other coastal economies such as Benin and Togo, heavily rely on import-export trade. These structural differences affect the economic priorities of each country and how they would like the Eco to be designed. The first category will gain more with mechanisms that protect them from external shocks, while the more industrialised economies will be better off with a stable currency that attracts investment. Finally, the coastal economies may benefit more from better flexibility in exchange rates to allow them to stay competitive within international markets.
Different currency realities
In terms of current currency usage, the fifteen countries can be divided into two groups: those with a unique national currency and those with the CFA franc.
Nigeria, Ghana, Liberia, Sierra Leone, Gambia, Guinea, and Cape Verde all have their own national currency, and so would need a carefully designed shift toward a shared system. The second group consists of eight CFA franc countries: Senegal, Togo, Mali, Côte d’Ivoire, Niger, Guinea-Bissau, Benin, and Burkina Faso. Their currency was created in 1945 and is tied to France because it is pegged to the Euro, and they share monetary governance. With the CFA countries, the design challenge is even greater, because it involves completely dismantling a monetary structure that has existed for 80 years, replacing French Treasury guarantees with new regional arrangements, and getting rid of the current external backing with the euro.
The French question
In addition to the economic and monetary issues that made the design process difficult and lengthy, France’s historical involvement in West Africa’s monetary policy makes the problem more complex. One point of tension about the Eco project is whether it should have links with France, as the CFA currently does. The CFA is guaranteed by the French Treasury, which is committed to a fixed exchange rate with the euro and ensures the currency’s convertibility. Although this arrangement provides stability and low inflation, critics say it limits monetary sovereignty for African countries and reinforces a post-colonial monetary dependency on France. Having a common currency detached from France provides greater sovereignty by giving the countries the possibility to adjust their fiscal policies to their economic structures. However, this could also reduce the stability of the currency and induce higher potential macroeconomic risks.
These elements have been the source of misalignment between French-speaking and English-speaking countries in terms of their preferences over the design of the Eco. Broadly, English-speaking countries want the Eco to be detached from France, while French-speaking countries, led by Côte d’Ivoire, envisioned it replacing the CFA franc while retaining key institutional ties with France.
Beyond the design challenges
Despite the difficulty of designing the single currency project, the fifteen countries have managed to put in place a roadmap with criteria that each country must complete to harmonise their monetary policy before an Eco project could be launched. These include achieving a single-digit inflation rate at the end of each year, a maximum fiscal deficit of 4 per cent of the national GDP, central bank financing below 10 per cent of the previous year’s revenue, avoiding new domestic default payments and settling existing ones, a minimum tax revenue of 20 per cent of the GDP, a public sector wage bill under 35 per cent of tax revenues (the total cost of public sector salaries), public investment of at least 20 per cent of tax revenues, a stable real exchange rate, and a positive real interest rate.
Beyond these elements, one of the other obstacles to the project is the lack of both political and economic leadership. As far as economic leadership is concerned, Nigeria is the most likely candidate. In terms of GDP, Nigeria accounts for 70 per cent of ECOWAS’s GDP. This gives it great bargaining power. Yet despite its economic weight, the country’s commitment to the Eco project has been ambivalent. It has not undertaken any major economic initiatives that would enable it to reduce its inflation rate, fiscal deficit, etc.
The withdrawal of Burkina Faso, Mali, and Niger from ECOWAS, in January 2025, further weakens the organisation, and puts a major question mark over the alignment of these three countries with the Eco project.
Without that decisive leadership that will pull together the potential member states, the currency union project will continue to struggle to materialise and the benefits to trade and economic integration will go unclaimed.
LSE
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