Just like their counterparts in Europe, West African Countries under the Economic Community of West African States (ECOWAS) recently announced plans to launch a single currency, called the Eco in 2027.
The fifteen-member regional bloc said a single currency would help remove trade and monetary barriers, boost economic activity, and improve the living standards of over 385 million people in the region.
Seven currencies are currently in use among member countries with eight French-speaking nations using CFA Francs. The remaining countries including Nigeria have their currencies, none of which is freely convertible. If all goes to plan, the existing national currencies of these countries will be replaced by the Eco in four years.
One of the most significant effects of the proposed new currency is that it will mark the end of the CFA Francs, the currency used by eight of the fifteen member states. The CFA Franc is seen by many as not just a relic of French colonialism in Africa, but as a strategic tool used by the French government to maintain dominance over its former colonies.
So why is the CFA Franc significant in this conversation? let’s look at a bit of history.
Following the decolonization process of the 50s and 60s, many African countries gained independence from the French but countries in West and Central Africa maintained the CFA Franc, a colonial currency introduced in 1945 by the then-French leader, General Charles de Gaulle.
The CFA Franc which stood for Colonies Francaises d’Afrique translated as French Colonies for Africa in English is the name of two currencies, the West African CFA franc, used in eight West African countries namely Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo; and the Central African CFA franc, used in six Central African countries namely Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea and Gabon. Although separate, the two CFA franc currencies have always been at parity and are effectively interchangeable.
It is noteworthy to state that 60 years after independence, these fourteen countries still use the CFA, thus giving France undue influence over their economies and monetary policies. France’s influence is so entrenched that even the CFA notes and coins are printed in France before being transported to the countries where they will be used. The amount of CFA Franc in circulation as well as the exchange rate are both determined by the French Finance Minister.
The Central Banks of these countries are also required to deposit 50% of their currency reserves in the French Central Bank and even worse, these deposits are subject to negative interest, meaning that the African countries are paying for their money to be stored in France. Through these arrangements, France strangles the economies of the CFA countries by limiting the liquidity of their central banks thereby blocking their access to investment capital.
France also holds a de facto veto on the boards of the two central banks and a French representative is a voting member of the monetary policy committee of the banks. In exchange for French foreign aid, these countries were required to give France the right over natural resources and allow France to maintain troops in their territories.
But with the proposed Eco currency, it would appear that the leaders of French-speaking West Africa have finally decided that the need for independence supersedes any perceived benefits of staying tied to France.
This is so because a new common currency will allow them to move their reserves from the French central bank into what is to be called the Central Bank of West African States located in Dakar, Senegal. They will also have control over the monetary policy of their countries, and attract huge foreign investments without any interference from France. France will also cease to be a member of the boards of the central banks of these countries and will no longer have veto power when it comes to decision-making.
But after a series of postponements most notably in 2003, 2005, 2010, 2014 and 2020, there are concerns over achieving the new currency for the region in 2027, which is just four years from now. This is because four primary convergence criteria must be met by each member country before the eco could be implemented. These includes:
-A single-digit inflation rate at the end of each year.
-A fiscal deficit of no more than 4% of GDP.
-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.
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.
Another critical factor that may stall the implementation of a single currency for the sub-region is the monetary policy dynamics of the different countries that make up the ECOWAS. For instance, in Nigeria, the Central Bank is pursuing a cashless economy aimed at mopping up excess liquidity, control money supply, inflation and terrorism financing.
The apex bank in January also launched a national domestic card scheme, AfriGo, to rival card payment schemes like Mastercard, Visa and Verve. CBN governor, Godwin Emefiele said the move will drive financial inclusion and concentrate card financial data in Nigeria, even as it serves as a symbol of national pride for its adopters. According to him, with the AfriGo card, Nigeria has joined countries like China, Russia, Turkey, and India, which have their local cards.
Therefore, it remains to be seen if ECOWAS member countries will be able to harmonize their positions and come up with a single currency for their mutual interest and prosperity.
