Hopes for a West African Single Currency Fade

Hopes for a West African Single Currency Fade as Ghana and Nigeria Launch Digital Money

By kingsley kobo

DIGITAL CURRENCIES in Ghana and Nigeria are threatening two decades of work towards a common legal tender in West Africa.

The adoption of the eco (pdf), a new currency for the entire region, would help remove trade and monetary barriers, boost economic activity, and improve living standards in the community of 385 million people, according to the Economic Community of West African States (ECOWAS).

Seven currencies are currently in use in West Africa’s 15 countries, with eight mostly French- speaking nations using CFA francs. The remaining countries have their own currencies, none of which is freely convertible. After multiple postponements (in 2005, 2010, and 2014) following its conception in 2003, a workable deadline for the launch of the eco was set for January 2020 but, as feared, it never happened.

Some experts fear the single-currency dream project could be further stunted by the emergence of central-bank digital currencies (CBDC) in West Africa’s economic powerhouses.

Central-bank digital currencies are emerging in Ghana and Nigeria.

A central-bank digital currency is the virtual or digital form of a country’s fi at currency. It is regulated by the nation’s central bank. Nigeria and Ghana are the fi rst two countries to roll out such projects in Africa, although Rwanda, South Africa, Tanzania, and Kenya have also been conducting research.

Nigeria partnered with Bitt, a global fi nancial technology company, to launch its CBDC in October 2021, while Ghana hired German fi rm Giesecke+Devrient for its e-cedi pilot a month earlier.

Although offi cials from both countries claim that their respective digital currencies are meant to promote fi nancial inclusion by bringing the unbanked into the fi nancial system, the timing of those initiatives oddly coincides with the stumbling eff ort to get eco off the ground, according to one fi nance professional.

“At this stage, we are supposed to be talking about e-eco or eco itself, and not the electronic versions of other currencies in the sub-region,” says Ahmed Kone, researcher at Bamako University of Social

Sciences and Management in Mali. “If Nigeria and Ghana are testing central-bank digital currencies, it indicates that they are losing faith in the common currency project.”

More stumbling blocks to a common currency.

While the idea of having a common currency excites many in West Africa, the project seems a long way from fruition. Four primary convergence criteria must be met by each member country before the eco could be implemented. • A single-digit infl ation rate at the end of each

year. • A fi scal defi cit of no more than 4% of GDP. • Central-bank defi cit-fi nancing 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.

Most of the 15 countries may likely not be able to achieve all of the above criteria for years. Only Cape Verde, Liberia, Ghana, and Togo have met some of them, but not consistently.

The stringent standards constitute a major stumbling block for the eco project, and that could be the reason why some nations in the space are thinking otherwise, says Muhammad Umar, senior fellow at the Nigerian branch of the Centre for Democracy and Development (CDD).

“When I read that Nigeria and Ghana are testing CBDCs it immediately confi rmed the fears I was

having for the eco,” he says. “Would it happen in 2027 like some are speculating? Would it happen in 2030? Nobody is sure because the criteria are too strict and they don’t refl ect the realities of our economies.”

The Nigeria factor

The launch of the e-naira in Nigeria does not come as a surprise to some observers.

“Nigeria ought to play a catalyst role in this project owing to its weight and infl uence in the region,” says Lawani Babatunde, a Cote D’Ivoirebased fi nance journalist.“But we are not seeing that because perhaps they feel they have nothing to lose or gain from a common currency.”

Meanwhile, Nigeria is the only country in West Africa with a banknote printer and mint. The Nigerian Security Printing and Minting Company Limited prints the naira, and may likely be selected to mint the future co if member states do manage to fi gure out the regional solution.

Is the eco even necessary?

Economists are divided over the need for a single currency in the region. While some believe it will promote integration, others question the purported economic benefi ts for businesses considering the slim volume of trade among the bloc’s members.

Intra-ECOWAS trade accounts for just 11% of members’ total trade, which is a somber refl ection of a broader situation of the continent where commercial exchange between African countries represents only 15% of broader trade, the lowest globally.

A common currency has proved to be an insuffi cient panacea for stimulating intra-African trade if we take heed of the experiences from the two monetary zones that share the CFA franc. In the Economic and Monetary Community of Central Africa (Cemac), intra-regional trade lags around 5%, despite more than 70 years of using a single currency.

In the West African Monetary and Economic Union (Uemoa), trade flows a bit more freely, at 16%, but it’s not encouraging, considering that their version of the CFA has been in use since 1945.

However, some advocates of the eco do not want monetary policy and trade to stand as the only motivating factors of the project. A country or region having and controlling its own currency is evidence of independence and sovereignty, says Clement Gbegnon, a former risk manager at the West African Development Bank (BOAD), based in Togo.

“There is currently a strong desire in Frenchspeaking West Africa to do away with CFA francs, which are considered as a colonial relic,’ Gbegnon says. “A currency is an identity. It is like the color of a country’s fl ag, an emblem, or a national anthem.