Can a West African Currency Union Work? (Euro to Eco)

I had blogged about the West African countries trying to form a monetary union. The name of the proposed currency is Eco.

Simplice A. Asongu of the African Governance and Development Institute in this piece try to figure the idea:

The eurozone’s experience showed how unruly currency unions can be, and how important it is to continue experimenting and adapting. A currency union comprising the 15 members of the Economic Community of West African States will be no different – but that doesn’t mean it can’t work.

Apart from the convergence critieria (which most do not meet), there is the French angle:

Complicating matters further is the extent to which outside forces, especially France, will shape the currency union’s trajectory. ECOWAS includes eight Francophone countries – Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo – that have had a single currency, the West African CFA franc, since the days of French colonial rule.

In fact, it was initially proposed that ECOWAS’s remaining seven countries – Cape Verde, The Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone – should first form a monetary union on their own. Once this new currency union had proved functional and valuable for its members, it would be much easier to convince those using the CFA franc to join their West African partners.

After all, the France-backed currency, which is currently pegged to the euro, offers significant advantages, including exchange-rate stability and lower interest rates. Members of the West African CFA franc currency union might not want to risk these benefits by joining an unproven currency union with countries that have a history of high interest and inflation rates. And France itself has an interest in the CFA franc countries’ rejection of the ECO, because they deposit half of their foreign reserves in the French treasury.

Despite these formidable challenges, there are reasons to be optimistic about the ECO – beginning with its potential to accelerate regional integration. A successful ECOWAS currency union would likely spur progress on the proposed East and Southern African Monetary Zones. This would go a long way toward advancing progress on the ambitious African Continental Free Trade Area.

 Looks even more interesting and formidable…

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