Recently, the Economic Community of West Africa States (ECOWAS) announced that the much-awaited single currency for West Africa will materialize in 2020.
The initial idea to create a single currency for the region was hatched close to two decades ago but its implementation has proved elusive, largely due to lack of the needed legal framework to ensure smooth implementation.
Although there have been a few cynical voices, many West Africans have welcomed the idea saying a single currency will be a major step towards the realization of a united Africa, which is long overdue.
But despite the scepticism about the prospects of this idea coming to fruition, particularly at a time when strong economic blocks like the European Union are disintegrating, a single currency would definitely have far-reaching effects on the region.
Here are the three main problems that the single currency is expected to address.
Although some of the West African states, especially the French-speaking ones, already have a currency union which recognizes CFA Franc (courtesy of the Communaute Financiere Africaine, or the African Financial Community) as its currency, the lack of a single currency for ECOWAS member states has been a major impediment to the region’s economic integration.
A single currency covering all the 15 member states would play a significant role in speeding up the macroeconomic convergence needed to move the region forward. Such an economic merger will ultimately put ECOWAS members in a better position to attract regional and international trade partnerships.
Through economic integration, the West African region will become a single market with a GDP of more than $100 billion, compared to the current fragmented markets. It will also set a foundation for political integration.
Restricted Regional Trade
Currently, trade between West African countries is extremely low, with Nigeria, the region’s largest economy, accepting less than 0.5 percent of its total imports from other West African countries.
Experts say trade between West African countries is set to grow with the launch of a single currency. Investor confidence will also grow, further attracting regional and international investors.
By creating a regional trade bloc, ECOWAS will have a bigger say in the global market and stimulate an improved economic outlook for the whole region.
Money Transfer Problems
Citizens, especially traders, in this region will enjoy easy and cost-effective transactions since they won’t be required to convert their currencies when making payments.
Currently, anyone wishing to send or receive money from West Africa has to deal with numerous hurdles such as the lack of independence of central banks and non-convertibility of some currencies.
But in order to achieve the objective of the intra-economic union, member countries have to implement a raft of measures including the adoption of a market-based exchange rate system.
African leaders must also appreciate and take responsibility for their current financial woes in order to allow a flawless regional economic integration.