July 1, 2019 | AtoZ Markets - The 15 member nations of ECOWAS – Economic Community of West African States agreed to launch a common fiat currency dubbed as “Eco” in January 2020. Will African Eco currency adoption face the same obstacles as pan-European currency EURO?
West African Eco currency launch to boost smaller economies in the region
As the media reports, the leaders of 15 member nations of ECOWAS, expect Eco currency to help to create a more frictionless trade. The experts believe, however, that the main reason behind West African Eco currency launch is more political than economic.
Most of the ECOWAS members are former colonies of France and, allegedly, would love to be more self-sustaining financially. Thus they can’t go it alone until they have their own independent currency.
It is worth to mention, as recently the crypto community has pointed out, Eco currency is not a cryptocurrency but a fiat currency which is not built on the blockchain.
The crypto community believes emerging markets could benefit the most from cryptocurrency or blockchain. Thus, crypto enthusiasts are interested if the technology is implemented in any way in the Eco.
Eco currency await the same problems as Euro?
ECOWAS includes Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo — representing a total population of around 385 million. Notable, that eight organization’s member-countries — Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo — already use a common currency – the CFA (West African or Central African Franc.). However, the seven other ECOWAS countries have their own currencies, none of them freely convertible.
The treasury of France guarantees the CFA and pegs it to the euro. Financial experts believe, that CFA currency union of Western Africa is so closely linked to the eurozone that currency risk may be negligible in trade between these countries and the eurozone.
Thus the common currency launch in the West African States might elaborate this link. However, certain issues in the common currency launch should not be neglected. The biggest obstacle of forming a single currency zone is economical segregation between the African regions. The same issue came into light during
Euro light. Back then France and Germany having multi-trillion dollar economies took over the biggest financial responsibility. At the same time Greece and Italy, particularly after the 2008 crisis became the main debtors and a kind of burden for the EU.
For example, Nigeria’s oil-rich economy dwarfs any other nation and provides two-thirds of the economic output in the region. The experts believe, that Nigeria could be put in the worse position than Germany and France, shouldering a far greater burden per GDP USD.
Experts opinion on Eco currency launch
Andrew S. Nevin, the chief economist at PwC West Africa, in one of his recent interviews mentioned the three major sticking points following the proposed plans for common Eco currency launch:
- Considering that Nigeria has not signed up yet for regional integration in ECOWAS, common currency launch seems a little premature;
- The implementation of existing ECOWAS trading should be improved first. Then the community should improve the physical infrastructure;
- The organization should consider the more pressing issue- the ability to trade in every country’s native currency, without using a third currency like euro or dollars.
The aforementioned logistical hurdles are expected to be solved before January 2020. It remains unknown how much dominance Nigeria will require for their support.
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