It’s been 20 years since the euro was introduced as the currency of choice across the European Union. It was designed to reduce friction in trade and allow for better cooperation in the eurozone, and was largely successful. Did it work all the time? Of course not.
It had its drawbacks, and the period of Spain, Portugal, Italy and Greece’s financial crisis of 2009-10 was a very testing time for the currency and the region as a whole.
Why is a channel focused on highlighting African stories through an African lens worried about the euro’s 20th birthday?
Well, because there’s a region in Africa - ECOWAS - that’s been trying to launch its own shared currency for some time. Now, the Economic Community of West African States announced at the end of its summit in Abuja, Nigeria, that it would be adopting the ECO as its shared currency by 2020.
This is big news. Look, eight of the ECOWAS countries - Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo - already use a shared currency: the West African CFA franc. This is the currency used currently in the Francophone countries.
Now, the plan is for six of the 15 member nations, including Liberia, Ghana and Nigeria, to drop their own currencies and adopt the eco instead. The eco would then be aligned to the West African CFA franc, making one currency available as legal tender throughout the region.
This obviously has its benefits: a single currency would make trade easier, and people can travel across borders without worrying too much about losing money due to fluctuating exchange rates.
A common currency would also mean a shared fiscal policy, and strong fiscal policy is certainly needed in Africa.
But, there are drawbacks. How do you reconcile using a common currency across member states that have vastly different economies across a vast scale.
For example, the GDP of a country like Guinea is some US$10.4 billion. Nigeria’s is US$375 billion. The entire country of Guinea has a lower GDP than a medium-sized state in Nigeria.
So, monetary policy will be key. The independence of central banks also needs to be beyond reproach in order for this to work.
Political will, which was proven by the member states of ECOWAS agreeing to adopt the eco by 2020, is simply not enough to get a unified currency off the ground.
Those who support the move have cited the fact that the franc bears reminiscence of colonial life under France and see the eco as a way to further break free from the legacy of colonial rule.
Others are neither here nor there; there’s not been much public debate over the eco in Nigeria - the most populous country in West Africa. Many Nigerians feel it would be folly to let go of the naira, and with good cause. Should the eco fail, Nigeria has more to lose. It’s the biggest economy in Africa.
An African Development Bank report in 2016 made a strong case for the introduction of the eco, citing the success of the euro, and the shared muscle of economies working together to navigate tough economic times.
Shared monetary policy across member states would also help individual countries manage their own weaknesses in this regard.
Look, if you look for obstacles to prevent the launch of a single, unified currency across the West African region, you’ll find plenty, but there are many more good arguments in favour of the eco.
For example, many of the currencies in use currently are not convertible. How are you expected to trade across the border if you can’t convert your currency? Think about small and medium enterprises wanting to expand their operations to other countries. It just makes sense to have a single currency, particularly if you live in a smaller nation with a weaker GDP.
If some of the arguments in the African Development Bank are to be believed, the 2020 adoption and rollout of the eco is overly ambitious, but if the recent ECOWAS Summit is anything to go by, West Africans could soon have their very own shared currency in the eco, which would hopefully help drive economic growth, trade and cooperation between the member states.
* #NewsByte with Lance Witten is a product of the ANA+ digital channel. Find them on YouTube.