Former Finance Minister Ken Ofori-Atta has advised West African nations to reconsider their pursuit of introducing the single currency, known as the ECO, for the region.
Initially slated for introduction in 2021, the outbreak of COVID-19 compelled ECOWAS to postpone the currency’s launch to 2027.
The ECO was envisioned to stimulate economic growth in West Africa and facilitate cross-border trade. Furthermore, it was anticipated to eventually merge with the Euro-pegged CFA franc, predominantly used by French-speaking West African countries within the West African Economic and Monetary Union (UEMOA).
However, Mr. Ofori-Atta believes that many countries in the region lack the commitment necessary for the single currency initiative.
In an interview with Joy Business’ George Wiafe at the AFREXIM Annual Meetings in Nassua, Bahamas, Mr. Ofori-Atta expressed skepticism about most ECOWAS member countries’ ability to meet the convergence criteria required for the introduction of the currency.
“ECO has been difficult and the capacity of us, the 16 countries in ECOWAS to come to a convergence point where we all will fulfill the criteria seems very lucid, he said.
As per the requirements, ECOWAS member countries must fulfill four key criteria: maintaining a single-digit inflation rate by year-end, sustaining a fiscal deficit below 4% of the GDP, limiting central bank deficit-financing to less than 10% of the previous year’s tax revenues, and ensuring gross external reserves adequate for a minimum of three months’ import cover.
Mr. Ofori-Atta believes that these criteria may pose challenges for the economies required to introduce the currency.
He suggests that ECOWAS can glean valuable lessons from other regional blocs by enhancing payment systems and eliminating trade barriers.
“If you look at East Asia, they didn’t really end up having one currency but they really increased trade and also got their payment systems in an effective way. That’s a model that has worked and maybe we could under the leadership of Afriexim bank facilitate all of these fintechs being sandboxed into the central banks. I think we will come out with apps that will be more efficient for us”, he suggested.
Additionally, Mr. Ofori-Atta suggests that ECOWAS could utilize the African Continental Free Trade Area to eliminate obstacles and foster trade harmonization within the region.
“I think the issue of payment systems and the issue of digitalization being efficient and therefore supporting AfCFTA maybe will lead to the type of results we require”.