The news of a new currency adoption by some ECOWAS States has been the trending issue in the past few weeks and has also provoked market observers and investors to ask questions: What is Eco? Is it a good idea? Will the adoption happen eventually? Why are the parties divided? What is the impact? Bamidele Famoofo reports the pros and cons of the change and its implications on investment in the ECOWAS bloc
Notably, the adoption of the CFA franc by the French-speaking West African countries has its good and bad aspects. Proponents observed that the shared currency has stabilised prices within the zone (inflation rate averaged 6 per cent in 50 years compared to +20 per cent in Nigeria and Ghana), fostered trade with Europe, neutralised FX uncertainties, and eased repatriation of funds. On the contrary, the opposers tagged it as a colonial relic, pegged to the euro and guaranteed by France, robbing users of their monetary autonomy. This is supported by the fact that the European Central Bank (ECB) technically dictates the direction of rates and a French delegate is a voting member of the periodic monetary policy meeting. Furthermore, despite its adoption, intra-regional trade, real sector lending, industrialisation and income growth remain at a sub-optimal level.
...