Satyajit Mishra
West African politicians have agreed to create a common currency, the eco, over the West African Monetary Zone (WAMZ-Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone) and implement it by 2015. The WAMZ aims at establishing a strong stable currency to rival the CFA franc, whose exchange rate is tied to that of the Euro and is guaranteed by the French Treasury. If the implementation proves successful, the CFA Franc will merge with the Eco, giving all of West and Central Africa a strong, stable currency union of over 300 million people.
Green: West African CFA Franc
Red: Future Eco Area
West African politicians argue that the CFA franc has proven to be a success for the West African Economic and Monetary Union (known as the UEMOA-Benin, Burkina Faso, Ivory Coast, Mali, Niger, Senegal, Togo and Guinea-Bissau) countries, and hence are looking to integrate and create their own success story. However the success of CFA franc is no guarantee of a successful Eco. The French government underwrites the CFA franc by guarantee, giving it a fixed exchange rate of 0.0015 Euros to a franc. This has helped provide a stable African currency, perhaps the most stable and investor friendly currency in Africa. Additionally, the UEMOA countries have the most intraregional trade among the other countries in the region.
The UEMOA currency union in itself isnt free from flaws. UEMOA countries move at different speeds, and economic changes at times have zero correlation amongst the member countries. Also as these countries are primarily in their nascent stage of development a wide interest rate is not ideal, some countries simply end up with the wrong interest rate. An inflexible exchange rate makes economic adjustment difficult. This is why over the past decade output of UEMOA countries was about half of that of the neighbouring comparable sub-Saharan countries. While the flaws of UEMOA are many, the success of the CFA Franc has been at least a qualified one. However, the same cannot be said for the Eco, the eco zone has fatal flaws. The level of economist diversity is unparalleled. For instance, Nigerias GDP of $260 billion alone towers over the entire UEMOA GDP of $75 Billion. While the other West African countries are exporters of oil, the Nigerian economy is heavily dependent on oil imports. During periods of high oil prices the Nigerian economy may push for high interest rates but this would severely hamper the other eco-zone economies. The eco may also be vulnerable to speculations. It is unlikely any country would be able to guarantee it. Without any such support, investors would be nervous.
Policies that may benefit one country may prove to be disastrous for another. Coupling countries at such an early stage of development simply does not make any sense. If the well-governed and economically rich euro zone has struggled to successfully cope with pressures of the Euro, it is unlikely an impoverished Eco will find success.
Currently in 3rd year of B.Com under Calcutta University specializing in accounting and finance. Also pursuing Chartered Accountancy. Reading research and analysis of the global economy, political matters that influence our economic decisions, game theory and strategies in war, strategy formulation and implementation and contemporary issues in marketing interest him a lot.