The ECOWAS common currency

AT the 4th meeting of the Presidential Task Force on the ECOWAS Currency Programme held recently in Niamey, Republic of Niger, President Muhammadu Buhari urged ECOWAS member countries to tread carefully in pushing for a single currency in the sub-region by 2020. Nigeria had earlier withdrawn from the task force. We commend the return of Nigeria to the task force and agree with the president on the revised roadmap to the realisation of a single currency for West Africa.

The president anchored the call on four main arguments.  The first is that the experience of the European Union, which had achieved this goal several decades ago, does not commend the move. The EU continues to face serious challenges arising from the persisting differences in economic fundamentals across member countries several decades after the introduction of a single currency.  This is the case in spite of the effort by the EU to ensure that countries meet certain basic requirements before accession into the Union. ECOWAS member states do not have similar requirements for membership. Their economies differ widely in several economic fundamentals and no significant achievements have been made in terms of harmonising fiscal and other policies across states over the years, making it more difficult to pull through with the project by 2020.

Second, the president argued that a fast-track approach to monetary union, while neglecting fundamentals and other pertinent issues, was fraught with too many dangers to succeed. The member states of ECOWAS have diverse and uncertain macroeconomic fundamentals. These include unrealistic inflation targeting based on flexible exchange rate regimes. Inconsistency with the African Monetary Cooperation Programme constitutes another major challenge to be overcome in order to make monetary union meaningful. Third, the president said domestic issues in ECOWAS member countries relating to governance and aid dependence needed to be addressed to improve the readiness of individual countries for monetary integration in ECOWAS by 2020. These have not been properly articulated and analysed, not to talk of being addressed. There are embarrassing situations in several states with threats of political instability as seen in recent occurrences in The Gambia, Togo and Burkina Faso.

Fourth, the president argued that the road map to monetary union by 2020 did not involve widespread consultation  with  national stakeholders, and was therefore not sufficiently inclusive to gain significant uptake among member states. Importantly, none of the issues that caused the earlier withdrawal of Nigeria from the process has come up as an agenda issue to be considered by the Taskforce. For any road map to be realistic and hold the chance of success, it must be the product of an inclusive process that addresses the concerns of member states with divergent views on the road map.

We sympathise with those who think the monetary union has taken too long to be implemented. However, we believe that taking such a step, without doing things carefully and cautiously in an inclusive manner, may put the economy of the region in jeopardy, with catastrophic consequences. Not only should there be a clearly spelt out convergence criteria for a single currency system, member states must meet those criteria. As it is now, a lot needs to be achieved in the establishment of the common market, the implementation of the ECOWAS trade integration protocols and reform of the financial systems. The level of institutional preparedness for the monetary union by member states remains inadequate. Member countries’ business cycle harmonisation in terms of real Gross Domestic Product (GDP), inflation, broad money and interest rate remains weak.

We support the president’s call for a thorough review of the convergence road map and the constitution of an expert committee on each of the subject areas to come up with an acceptable time frame, defined cost and identified funding sources.  Rather  than  rushing a monetary union,  the community should move towards ratification and domestication of legal instruments and related protocols, while fiscal, trade and monetary policies and statistical systems, which have not gone far, should be harmonised. The West African Economic and Monetary Union (UEMOA) countries should demonstrate the will to delink from the French treasury by a clear road map to that end. Member countries should place emphasis on effective coordination between fiscal and monetary policies to support price stability mandate and create an appropriate macroeconomic environment that is conducive for intra-regional trade.

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