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Is ECOWAS ripe for single currency?

The adoption of common currency in all the West African States is like a kid unwrapping an innocuous and precious gift, it means we are following what Europe did over two decades ago. The Euro, the single currency of European Union (EU), came into existence on 1st January, 1999. According to the European Central Bank (ECB), “The process of economic and monetary unification will contribute to the promotion of a harmonious and balanced development of economic activities throughout the European currency area, assist in the achievement of sustainable and non-inflationary growth and thus help bring about a high level of employment.”

Just like the quote above, the adoption of Eco as a common currency will be wonderful, as businesses that operate within the West African Currency Area would no longer have to worry about exchange rate fluctuations. Ghana Cedis would not need to worry about how much N1 cost. Ghana and Nigeria firms can do away with exchange rate fluctuations and hedging costs. It will reduce transaction costs. For instance, a tourist who intends to visit Nigeria, Ghana, Zambia, Togo, and Senegal would not need to worry about exchanging different currencies and loss in transaction costs.

There would no longer need for local firms to cover their high prices in local national currencies and as such pretty easy to compare say prices of cocoa in Ghana and Cote d’Ivoire. The statutory requirement requiring the West African Economic and Monetary Union to keep 50% of their foreign reserves at the French Central Bank would have melted like a dwindling candle. Eco will enjoy more credibility because it will be used in a larger currency zone. We have a total of 16 West African countries, which include Benin, Burkina Faso, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, The Niger, Nigeria, Senegal, Sierra Leone and Togo, all these countries having Eco as a legal tender will be a lovely dream.

Yes, the merit of common currency as highlighted above is rosy and tantalizing, but adopting it at this period might be costly for members’ states. Let’s look at the common drawbacks below. It means the nations within ECOWAS will lose the ability to employ monetary policy to fine-tune their respective national economies.

In 2011 in Europe, Greece wasn’t able to use monetary policy to tackle its debt. Nations that embrace Eco can’t devalue their currencies as they become uncompetitive. What would happen if a single country experienced higher wage growth, higher inflation and lower productivity growth? It means their exports become uncompetitive leading to lower demand and lower growth rate. How would such a country be able to set her interest rates when it is set by the Joint Central Bank. In 2008, the UK was hit very hard by the financial crisis. In response, the UK could cut interest rates very quickly. Also, the Bank of England was able to pursue quantitative easing to try and stimulate economic activity. If the UK were in the Euro, it would not be able to do this.

Therefore, the UK recession of 2008-2011 would have been even deeper if the UK didn’t have an autonomous monetary policy. Nigeria could as well highlight specific conditions that could make her join Eco in not too distant period, these conditions might include: That the Joint Central Bank must have sufficient flexibility to deal with local and aggregate economic problems; That it should be allowed to have control over her interest rate policies in the interim say 1-10 years; That it must create conditions favourable to firms and individuals investing in her country; That Eco would enable the countries’ financial service sector to remain highly competitive internationally.

The four primary criteria to be achieved by each member country are: A single-digit inflation rate at the end of each year; A fiscal deficit of no more than 4% of the GDP; A Central Bank deficit-financing of no more than 10% of the previous year’s tax revenues; Gross external reserves that can give import cover for a minimum of three months. As at the moment, how many West African countries have met convergence criteria? I think other West African should be wary before jumping the fray.

Yes, the adoption of Eco will reduce the exchange rate risk to businesses, investors and financial institutions but asking few pertinent questions will not be a bad idea: Will too much power be concentrated at the centre? Who set the monetary policy of the local nations? Will Eco be tied to the Euro? So what happens if the Euro devalues their currencies? Would the home countries be able to react to local economic conditions? If the hands of the local countries are tied and cannot control the monetary policies such as raising of taxes, issue debt by borrowing from the public and or print note to cushion the effect of pale economy, then such economy would dance like a hen on a rope Obviously, adopting a single currency for West African countries is still untimely, we can make use of the polices on ground like the free trade union agreement, the visa-on-arrival policy in Nigeria, common external tariff that has not yet been fully implemented, free movement of people among members’ nations, among other policies. May I ask: is the West African Railway line still under construction? Although the President, Muhammadu Buhari recently raised concerns over the planned single currency for the Economic Community of West African States.

He put it more aptly when he said the plan for the single currency, Eco, could be in serious jeopardy unless member states complied with the agreed processes. In the light of the above, we need to carry out a comprehensive assessment for the adoption of common currency and subsequently send same to the Economy Advisory Council who will advise the President as to whether common currency should be adopted, but regardless of whether we are adopting it or not, our emphasis is to promote industrial development, start producing at home and become the giant technologically. Individually we are great nations; collectively we are greater nations if we conscientiously put our act together.

Let’s begin to create a society where every individual would have access to good roads, constant power supply, good education and provision of affordable healthcare. As at today, if Nigeria decides to adopt a common currency, it has potentially a very serious consequence, and significantly increases the risk of deflation, recession and a debt crisis. These potential problems far outweigh the small benefits of joining at the moment. It will pay the West Africa region if they can have a long term planning before plunging into the deep.

•Anjorin, an entrepreneur, writes from Lagos via: olusanyaanjorin@ gmail.com

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