Nigeria has cautioned member countries of the Economic Community of West African States against forcing through the planned currency integration in the sub-region by 2020. President Muhammadu Buhari, who was represented by the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, gave the warning during the recent 5th meeting of the Presidential Task Force on ECOWAS Currency Programme in Accra, Ghana.
Buhari noted that Heads of Government had not properly articulated and analysed a comprehensive picture of the state of preparedness of individual countries for monetary integration by 2020. He reiterated that the non-preparedness of some member countries, the attempt to water down criteria and the continuing disparities between macro-economic conditions in ECOWAS countries are major issues of concern that members must examine in order to make progress.
In the case of ECOWAS, it is sad and unthinkable that none of the countries has fully met the conditions precedent to achieving the planned monetary integration. Against this backdrop, we strongly recommend that ECOWAS member states should not resort to hasty and ill-digested decision of forcing through the planned currency integration in the sub-region
It is, indeed, sad and depressing that ECOWAS Heads of Government have not been adequately briefed on the full implications of forcing through the integration by 2020, particularly where some countries were not individually ready domestically.
Monetary integration was one of the agenda of ECOWAS at its creation in 1975. But the drive for economic integration in the sub-region became intensified from 1987 following the adoption of an ECOWAS Monetary Co-operation Programme as a core mandate of the sub-regional organisation.
The EMCP was adopted against the backdrop of some challenges confronting member states, including low level of trade among the countries, lack of payments system, poor infrastructure, underdeveloped financial system and disparate financial, fiscal and monetary policies. The EMCP outlined a set of macroeconomic convergence criteria, which member countries must achieve prior to the introduction of a single currency in the sub-region and the policy framework for the harmonisation of monetary policies, statistics, development of a payments system and trade liberalisation, among others.
There are 10 macroeconomic convergence criteria under the EMCP. Chief among the criteria are: achievement of budget deficit/GDP ratio (excluding grants) of not more than four percent; reduction of inflation rate to not more than five percent; Central Bank financing of budget deficit of not more than 10 percent of previous year’s, and achievement of gross external reserves of at least six months of imports’ cover. However, till date, no member-country has been able to satisfy all the convergence criteria.
It must be noted that the benefits of monetary integration far outweigh its costs. With monetary integration, member states can enjoy the economies of scale in production and trade accruing from specialisation. This will lead to increased trade in goods and services among the member-states. Increased trade will, in turn, lead to high growth rate and improvement in per capita income, as well as minimisation of transaction costs, in the form of exchange rate losses, among the member states.
Also, with monetary integration, member-countries naturally benefit from currency convertibility and this enables seamless trading in the sub-region. It also leads to stability of the exchange rate. The absence of multiple currencies and exchange rate adjustment ultimately increases trade and Foreign Direct Investment and a reduction in capital flight to member states.
Also, since external reserves positions of all member states are not likely to be at a deficit at the same time, member countries can benefit from using a common currency by pooling together their foreign reserves for their common use. Such pooling of reserves would economise reserve usage, thereby keeping the reserve position buoyant, which would, in tow, boost the value and stability of the exchange rate.
But considering the experience of other currency unions, like the European Currency Union, a lot of lengthy preparations and groundwork are needed before currency integration can be achieved successfully. In fact, the introduction of the Euro was the product of over 40 years of remarkable cooperation among sovereign states with great diversity of economic, social and political interests. Also, in spite of more than 30 years of cooperative efforts, following the signing of the Gulf Cooperation Council Charter in 1981, the goal of monetary union targeted for 2010 has not been achieved, owing principally to the unwillingness by member states of the GCC to surrender sovereignty to regional institutions.
In the case of ECOWAS, it is sad and unthinkable that none of the countries has fully met the conditions precedent to achieving the planned monetary integration. Against this backdrop, we strongly recommend that ECOWAS member states should not resort to hasty and ill-digested decision of forcing through the planned currency integration in the sub-region. It would be recalled that such recourse to hasty decision-making led to the short-lived introduction of ECOWAS Travellers Cheque some years ago.
In the present circumstances, the Presidential Task Force on ECOWAS Currency Programme should further examine why the member states were not able to meet the convergence criteria set for them many years ago and the way forward for the member states. They should also push for the ratification and domestication of legal instruments and related protocols, which have not been signed by the member states. Again, there should first be harmonisation of all fiscal, trade and monetary policies and statistical systems, before crossing over to having a joint currency.
Besides, ECOWAS Heads of Government should work out a clear roadmap on how the Francophone West African countries, otherwise called the West African Economic and Monetary Union would delink the CFA from the French treasury.
