In 2020, the Economic Community of West African States (ECOWAS) is expected to adopt a new currency – the ECO. This decision represents an agreement between France and the West African Monetary Union, adopted on 21st of December 2019. The project was publicly announced at a conference hosted by Ivory Coast’s president Alassane Ouattara, where the guest was Emmanuel Macron.
Why does this matter:
- France’s economic influence in the region will become highly limited. The former colonial power will no longer be represented in the Central Bank of West African States (BCEAO), while ECOWAS will become more independent.
- The adopting of a new currency is expected to create work opportunities for the youth and to boost trading across the region.
- The Eco will remain pegged to the Euro during the first stages of the implementation. However, ECOWAS will no longer be required to maintain 50% of their reserves in France’s treasury.
Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo currently use the West African CFA (Communauté Financière d’Afrique) franc which has been introduced in 1945, during colonial times. Apart from these countries, the CFA franc is also used in Central Africa, where it circulates under the same value.
ECOWAS members willing to join the ECO zone need to meet four set criteria. The countries’ inflation rate has to be single digit. The fiscal deficit cannot exceed 4% of the GDP, while the central bank deficit-financing cannot outreach 10% of the previous year’s tax revenues. Also, the governments need to make sure that the gross external reserves that can give import cover for a minimum of three months.
A report issued by the African Development Bank Group specifies that the 2020 deadline might be delayed, due to unaligned monetary and fiscal policies across the region. The CFA is being used in 14 African countries. However, only the ECOWAS decided to change its currency. Since 1994, the West African CFA Franc has been pegged to the Euro. According to the new agreement, the ECO will remain pegged to the European currency.
The movement comes not only due to the need to boost trade among West African countries, but also because of rising anti-French sentiments in the region. In the last few months local authorities expressed concerns over France’s military presence in the Sahel, as well as its partial control over the regional economy. These views were publicly approached by Macron who threatened to withdraw France’s troops.
The overall sentiment in West Africa regarding the monetary change to the ECO is optimistic. The youth in West Africa hopes that the adoption of ECO will attract more investors, creating thus new job opportunities. Most of the countries in the region face increased unemployment rates which forces young people to leave the country in the search for a better life and opportunities.
The peg’s purpose is to keep down the inflation rate which in other non-CFA countries has peaked in the last few years. One example is Ghana which in 2019 reached almost 10%. For this reason, on 28th of December 2019, Ghana officially announced the change of its currency Cedi, with the purpose of adopting the ECO. Therefore, Ghana is expected to become the largest economy of the block, followed by Ivory Coast.
Image: UNOWAS (link)
