Eco: Three known facts about West Africa Monetary Zone and CFA
On January 16, after an extra-ordinary meeting of ministers of finance and economy and governors of the Central Banks, member states of the West African Monetary Zone condemned in strong terms what they have described as a unilateral decision of French-speaking West African states to replace the CFA franc with a new single currency, Eco.
Alasane Outtarra, president of La Cote D’Ivoire and chairman of the Authority of Heads of State and Government of the West African Economic and Monetary Union (WAEMU) on December21, 2019 unilaterally renamed the CFA franc as “Eco” by 2020.
The WAEMU consists of Benin, Burkina Faso, Guinea-Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo, all of which are former French colonies except for Guinea-Bissau, which gained independence from Portugal in 1973.
Here are three little facts about the WAMZ and the CFA zone.
CFA once stood for the Communauté française d’Afrique, which was later changed to Communauté financière d’Afrique. The name is a colonial legacy and considerable monetary powers are still reserved to the Banque de France, the French central bank. The value of the CFA franc was fixed to that of the French franc until 2002, when France gave up its own currency and adopted the euro; the exchange rate since then remains fixed at 656 CFA francs to the euro.
The West African Monetary Zone is a group of six member states comprising: The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone, established by the Agreement of the West African Monetary Zone (2000). The WAMZ Agreement made provision for the establishment of the West African Monetary Institute (WAMI), which was set up in 2001 and located in Accra, Ghana. The WAMI was tasked with undertaking technical preparations for the establishment of a common West African Central Bank (WACB) and the launch of a single currency for the West African Monetary Zone (WAMZ).
ECO is the proposed name for the common currency that the West African Monetary Zone (WAMZ) plans to introduce. The aim is to merge Eco with CFA franc and then ultimately create the common currency. This is why the joint communiqué issued by the WAMZ Convergence Council cited earlier, (minus Portuguese-speaking Cape Verde), condemned the unilateral WAEMU decision to launch the eco as a rebrand of the CFA franc.
The four primary convergence criteria needed from each member state for the implementation of the single currency are; a single-digit inflation rate at the end of each year, a fiscal deficit of no more than 4 percent of the gross domestic product (GDP), a central bank deficit-financing of no more than 10 percent of the previous year’s tax revenues and gross external reserves that can give import cover for a minimum of three months.