Monrovia — Leaders of the member states of the Economic Community of West African States(ECOWAS), convening for the 55th Summit of the regional boy in Abuja, Nigeria have taken the bold step of formally agreeing to name a planned common currency the "ECO", which will become the new currency of West African states.
This comes as the Liberia dollar continues its freefall, now 200 to 1 United States dollars as Africa's oldest republic creeps to its 171st Independence Anniversary.
All 16-nation bloc - comprising Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo -- represent a total population of around 385 million.
At least eight of those ECOWAS countries -- Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo -- currently use the CFA franc while the rest, including Liberia use their individual currencies.
The plan 30-years in the making has been flirted with by regional leaders with limited results. While member states had penciled in 2020 as the year to unveil the plan, economists say the date appears unlikely. And even though supporters of the plan say the move would boost cross border trade in West Africa, early reservations from Nigeria could muddy the waters. "It is difficult to see Nigeria agree to being in a monetary union if it is not the boss," said economist Ndongo Samba Sylla from the Rosa Luxemburg Foundation in Dakar," quoted by France24. Sylla argues that the currency) would be launched into a void.
The report notes that Nigeria, whose oil-dependent economy accounts for two-thirds of the region's GDP, would likely dominate a future monetary zone and has so far been skeptical about its benefits.
Abdourahmane Sarr, former senior economist at the International Monetary Fund (IMF) told France24 that African leaders must face up to a number of choices -- including officially postponing the 2020 launch date.
The regional body in a statement Saturday made considerable progress on the single currency and has adopted "ECO" as the currency's name.
The adoption of the currency is aimed at creating a flexible currency regime after making considerable progress on plans for a single currency but the bloc would first need to set up a monetary union as it strives for regional integration.
Regional integration has been a subject for discussion for the bloc over the past decade which has encountered hurdles including questions around the currency of trade and the strengthening of individual economies within the region.
Several West African economies rely on commodities whose prices are regulated on international markets. Nigeria faced a recession in 2016 after the price of oil plunged two years earlier. It has since recovered but growth is still fragile.
For Liberia, currently in a financial decline with interventions from the International Monetary Fund, preparing to embrace the ECO could come with some complications.
In addition to the steady climb of the local currency's exchange rate to the US dollar, the country, according to the IMF remains a fragile, post-conflict country with weak capacity and limited physical and human capital accumulation. "External assistance to Liberia is winding down from its peak in 2016. To address pressing needs, the government launched its Pro-Poor Agenda for Prosperity and Development (PAPD), focusing on physical and human capital accumulation. Policy uncertainty and slippages, however, imposed a significant toll on the economy over the past two years. Particularly, higher fiscal deficits and accommodative monetary policy have led to rapid depreciation of the Liberia dollar and increased inflation, eroding the purchasing power of the poor," the body reported in its recent Article IV Consultation conclusion.
The IMF reported that country's near- and medium-term outlook under the baseline scenario is challenging. "Growth is projected to slow further to about 0.4 percent in 2019 and remain below 2 percent into the medium-term. In the baseline scenario, the authorities face the possibility of a forced, abrupt adjustment when domestic and external financing options are exhausted. An alternative reform scenario is therefore presented as a more viable alternative, in which growth weakens somewhat in the near term, due to proactive fiscal and monetary tightening, but picks up significantly over the medium term to exceed 5 percent by 2024."
In addition to the Nigeria concerns, some also question the implications of a regional currency in a region prune to black money scams and counterfeiting schemes.
This is why some economists are arguing against the currency plan is a bit unrealistic because at least seven of those countries, including Liberia, have their own currencies and none of them are freely convertible.
Others say, ECOWAS could take a lesson form the multi-year eurozone debt crisis as a case in point that single currencies, if not implemented the right way could be detrimental to countries' economies. For the foreseeable future, economist say Liberia, lime most countries in the region faces a daunting challenge putting their various economies in order for the imminent arrival of the Eco.
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