ECONOMY-WEST AFRICA: Monetary Union Back on Track?

By Toye Olori Reprint | | Print |

Toye Olori

LAGOS, Nov 12 1997 (IPS) - By now, most people in the West African region have probably long forgotten the Economic Community of West African States’ (ECOWAS) plans to introduce a common currency in the region.

The resolution, passed some 10 years ago, has moved at a snail’s pace due to poor economic policies and a lack of political commitment.

But at a seminar on the ECOWAS common currency held here recently, an official of the regional body said the idea is still on track and that ECOWAS is poised to ensure that a common currency is in place within the next three years.

According to Boubacar Ba, ECOWAS’ Deputy Executive Secretary (Economic Affairs), the 16-nation grouping must get its act together as a regional bloc to grab hold of the new opportunities brought by globalisation.

“The challenges posed by the prevailing regional and international realities, characterised by the growing regionalisation of the world economy, has necessitated the emergence of strong regional economic groupings,” Ba said in a paper, ‘ECOWAS Common Currency: How Feasible by the Year 2000?’

“West Africa has no choice than to pursue its integration efforts to make its countries survive the ongoing international competition,” Ba added.

The ECOWAS Deputy Executive Secretary admitted that the pace of the single monetary union had been hindered by West African leaders who keep backtracking on the policies agreed upon.

This lack of political commitment, Ba said, “had resulted in instability in the region and lack of consistency in the pursuit of macro-economic policies which had been worsened by rampant changes in political leadership”.

ECOWAS members are Benin, Burkina Faso, Cape Verde, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo.

Stronger regional integration would entail a harmonised monetary system, a common management institution to replace the existing currency regimes and the improvement and strengthening of the regional payments mechanism of the former West African Clearing House, now called the West African Monetary Agency (WAMA).

The upgrading of WAMA and the commissioning of its headquarters a year ago in the Sierra Leonean capital of Freetown, was the first step towards harmonising financial services.

According to the Central Bank of Nigeria (CBN), despite the marked increase in the value of transactions channelled through the then WACH in 1995, the level of clearing remains low.

During that year, transactions channelled through the clearing house were valued at 106.09 million West African Unit of Account (WAUA)(about 60 million U.S. dollars), compared to 58.70 million WAUA in 1994 (about 23 million dollars).

The CBN explained that the increase in the value of transactions was due partly to increased awareness of the clearing mechanism, because of seminars and workshops held in recent years to popularise the activities and operations of WACH.

Femi Ekundayo, President of the Chartered Institute of Bankers of Nigeria, said that the economic benefits of a unified currency for the sub-region should entice the countries to move at a faster pace.

These benefits include facilitation of greater inflow of foreign direct investments and the curbing of capital flight; a reduction in the illegal, speculative cross-border currency trafficking activities that result in price distortions; and increased tourism.

Ekundayo added that within ECOWAS, only the CFA is convertible. “The problem of non-convertibility of the various national currencies in the sub-region and the lack of a correspondent relationship among financial institutions across the national boundaries of ECOWAS member states, also pose serious problems…,” one of which is exchange rate instability, he said.