The Economic Community of West Africa States (Ecowas), made up of 15 countries, has officially adopted the Eco as the official currency for trade, and plans to begin issuing it in 2020. Currently, eight of the countries use CFA franc while the other seven use their own currencies.
Out of the 10 convergence criteria prescribed for the issuance of the currency, member-countries are supposed to meet four primary criteria. They must be able to achieve a single-digit inflation by close of each year and obtain a central bank deficit-financing of no more than 10% of the tax returns of the preceding year. They must also have a fiscal deficit of no more than 4% to the GDP whiles maintaining a gross external reserves which has the ability to provide an import cover for a minimum of three months.
The question that however arises is whether West Africa is ready for the 2020 roll out of the Eco in view of the requirements above? For instance, how many of these countries have been able to achieve a single-digit inflation consistently over a period of three years? How prepared are they to abide by a single monetary policy? What about the possibilities of differing policy effects, external economic shocks that might adversely impact, and transition costs?
A common currency framework is a good initiative which comes with a lot of benefits such as the removal of cost associated with converting currencies and exchange rate uncertainties as well as increase in price transparency, competition, investment and efficiency as well as boosting international trade. However, if the disadvantages outweighs the benefits then great caution must be applied.
Despite the enormous benefits of a single currency, I believe the concerns of Professor Peter Quartey of the West African Monetary Institute (WAMI) should not be ignored. His submission that half of the member-countries should be able to meet at least three or more of the criteria for three consistent years in order to ensure some point of stability is a laudable one. Such a call is very crucial since per history, most of the West African countries, like Ghana have not been consistent in the fulfillment of these requirements over a period. So irrespective of the advantages, member states must at least ensure consistency in meeting the primary criteria to ensure stability.