ECONOMY
A single currency for West Africa
Published: 28-SEP-04
The West African Monetary Zone (WAMZ) was formed in 2000 to try and establish a strong stable currency to rival the CFA franc, whose exchange
rate is tied to that of the euro and is guaranteed by
the Bank of France. The ultimate aim of the WAMZ is to merge
with the CFA zone to create a single monetary zone in the subregion.
By all accounts, Sierra Leone, Liberia, Nigeria, Ghana, Gambia
and Guinea are united in their determination to launch the
new currency, the Eco, despite being bogged down by several
difficulties.
Guinea is the only Francophone member of the grouping.
Along with Mauritania, it opted out of the CFA franc currency
shared by all other former French colonies in West and Central
Africa.
Economists agree that the success of the project depends on
the economic convergence of the member countries. In a speech
delivered by Dr Paul Acquah, Governor of the bank of Ghana,
at the Bank of England/ WAMI workshop on Monetary
Union
in January 2002, he outlined the many potential benefits of
monetary integration. These are reduced transaction costs, an
increased market size, increased trade within the sub-region and
greater currency stability.
He stated, however, that these benefits would only accrue
if only the countries in the region forming the union did their
homework well including implementing the necessary macroeconomic
policies, the structural and policy reforms, strengthen-ing trade and sectoral linkages that are essential for
economic growth.
With the exception of Liberia, the five countries established
an institutional, administrative, and legal framework for the zone
embodied in the West African Monetary Institute (WAMI), the
West African Central Bank (WACB), and the Stabilization and
Cooperation Fund. WAMI is an interim institution mandated to
facilitate the establishment of the WACB.
To this end, a convergence criteria was set under the ECOWAS
Monetary
Cooperation Programme (also adopted by the
WAMZ) for the participating countries. These included:
• Single digit inflation rate by 2000 and 5% by 2003
• Budget deficit (excluding grants) to GDP ratio of not more
than 5% by 2000 and 4% by 2002;
• Central bank financing of budget deficit to be limited to 10%
of previous year’s tax revenue; and
• Gross external reserves to cover at least three months of
imports by end-2000 and six months by end 2003
“They are essential to set the stage, not only for a single
currency but more importantly to build the foundation for
successful monetary integration,” said Dr Acquah, who has
called for the harmonisation of the accounting systems, banking
regulations, budget nomenclature, the legal framework of public
accounting and practices, economic statistics and concepts in
the sub-region.
“In this way, we would weave the fabric for efficient functioning
of financial and other institutions
within a competitive
regional economic space,” he said. “Otherwise,
the benefits of integration will be elusive”.
Little has been done in this direction. Guinean
president Lansana Conte, the new chairman
of the WAMZ, said at the last meeting of
the union that a great deal remained to be done
before the Eco could be launched in 10 months
time. This included members paying their dues
promptly and the reduction of tariff barriers.
At the moment several member states have not
paid their dues to WAMZ and that only two
have put protocols for reducing tariff barriers
within the future monetary zone onto their
statute books.
In addition, the barriers to the movement of
goods and people across the sub-region, which
still remain formidable, should be reduced considerably
if not completely eliminated.
What is more, despite the fact that several of
the WAMZ member states export large volumes
of oil, gold, bauxite, diamonds and cocoa,
their
countries suffer from weak currencies and
chronic budget deficits which are currently
plugged by their central banks printing more
and more notes of decreasing real value. In the
face of these problems it is doubtful if the Eco
could be launched in July next year.
“We are the richest in the region in terms of
natural resources, yet the poorest and the most
troubled,” a clearly frustrated President Jammeh
of Gambia said.
“If this venture fails again, then we have
failed our citizens.”
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