Seventeen years ago, members of the Economic Community of West African States (ECOWAS) decided they wanted a common currency, Eco. Launch of the Eco has been moved at least three times since, largely because member states have failed at meeting the terms for such a currency union.
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Nigeria accounts for 67 percent of the gross domestic product of the 15-member state economic community. French-speaking West African countries that use the French-backed CFA have decided to adopt a new currency the Eco to displace the CFA in 2020. Other member states such as Nigeria are expected to join eventually.
Here are five ways this will impact on Nigeria
The Central Bank of Nigeria loses control over interest rates. It matters for a country to be able to control its interest rates because this means it can also control inflation and the supply of money in the economy. The Central Bank of Nigeria is the economy’s heartbeat. Once Nigeria adopts the Eco, the powers of the CBN will be surrendered to West African Central Bank, which will now regulate the supply of money in Eco-area.
The Greek effect in the Eurozone – The value of the single currency used by the 27 members (excluding the United Kingdom) of the European Union has been negatively impacted by Greece’s economic debacles. This is despite the fact that Greece is a minor player on a global scale and contributes only two percent to the eurozone’s overall economy. A single West African currency will expose Nigeria to the economic good and bad of each single member state. The Eco will be the transmission mechanism.
Market efficiency – Eco will bring new strengths and opportunities arising from the integration and scale of West Africa’s $1.50 trillion economy, making the single market more efficient.
Eliminates exchange rate costs – when Nigeria joins the Ecozone, it will eliminate the need to exchange currencies which causes extra costs, risks and a lack of transparency in cross-border transactions. With the single currency, doing business in the future Eco area will be more cost-effective and less risky.
Improved economic performance among countries in the Eco area – some of the requirements impairing the launch of the Eco is the inability of ECOWAS member states to meet the baseline economic terms and conditions. The currency agreement obliges member countries to keep inflation rate below 10 percent, Nigeria’s November inflation was 11.70 percent in November.
Another requirement is to achieve budget deficit-to-gross domestic product (GDP) ratios of 4 percent and Central Bank financing of budget deficits should be no more than 10 percent of the previous year’s tax revenue while gross external reserves of country members must cover at least three months of imports. To date, no country in the bloc has fully met such stringent conditions. Improved economic performance will increase the chances of each member state being better off.
