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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