A Common Currency for West Africa

Last week, leaders of the Economic Community of West African States (ECOWAS) took a step further by announcing a common currency, the Eco, which is scheduled to be introduced in 2020. The Eco will initially be adopted in the West African Monetary Zone, consisting of six countries including Ghana and Nigeria. The aim of this gradualist approach is to promote macroeconomic convergence towards a single currency for the sub-region as eight other Francophone countries in the bloc are already using CFA franc as their currency. While the idea for establishing a currency union in West Africa has been present since 1999, a lack of political commitment and structural difficulties have prevented the implementation of a single currency in the region. Yet, realising the full potential of economic integration in the sub-region is only possible if a single currency is adopted among member countries.

Nonetheless, theory and evidence suggest that implementing a single currency has pros and cons. The optimum currency area theory states that countries within a free trade area should form a currency union in order to achieve optimum economic efficiency. The rationale is that adopting a single currency will facilitate regional trade, promote economic stability and ensure a monetary union that benefits citizens and industries of member countries. However, this greatly depends on there being free movement of labour and capital, strong integration of financial markets, and a system of fiscal insurance among member countries.