Ghana leads among members of the West African Monetary Zone

Ghana’s national currency, the cedi, is derived from the Akan word for the cowry shells used as currency during the days when Ghana was referred to as the Gold Coast. The current version of the cedi is the third printing of the currency since independence. Yet, if ECOWAS succeeds in its plan for a unified currency bloc, the latest version of the cedi, introduced in 2007, will be the last. Instead, Ghana and several other ECOWAS members have committed themselves to a common currency known as the “eco” by 2020.

Background

ECOWAS was established following the signing of the Treaty of Lagos in May 1975, and now includes 15 member states: Benin, Burkina Faso, Cape Verde, The Gambia, Ghana, Guinea, Guinea Bissau, Côte d’Ivoire, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.

The establishment of a regional economic body was intended to help West Africa increase the free movement of people, goods, money and labour across borders. Given the importance of external commerce, one of the organisation’s largest commissions is devoted solely to the issue of trade, including the establishment of common external tariffs. However, the mandate of the Macroeconomic Policy Commission extends farther than exports and Customs, and faces the complicated task of ensuring a cohesive union among several very different political economies. Part of the challenge comes from the vast disparities among the local economies of the 15 member states.

Three out of the 15 member countries are completely landlocked, for example. Some have vast amounts of natural resources and rank as top producers for hydrocarbons and minerals, while others lack a sustainable commodity industry.

Senegal’s economy is smaller and receives a great deal of international aid, but is also strengthened by its political stability; whereas Nigeria’s vast market is growing despite political uncertainty. Indeed, of all 15 member states, five – Nigeria, Côte d’Ivoire, Senegal, Guinea and Ghana – account for 90% of regional GDP.

Steps Forward

Making the eco a reality will thus require some tricky manoeuvring. The central hub for the development of the proposed currency bloc is the West African Monetary Institute, an Accra-based organisation established in March 2001 following the signing of the Accra Declaration by ECOWAS members. The institute’s mandate is to explore ways to further the goal of monetary union amongst ECOWAS countries. Although plans for a shared ECOWAS currency have been discussed almost since the bloc’s formation, the current plan, which was adopted in 2009, calls for two parallel currencies to be created before an eventual merger.

West African Monetary Zone

The West African Monetary Institute and ECOWAS have agreed that The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone – ECOWAS member states that do not currently participate in the West African Economic and Monetary Union, the Francophone subset of ECOWAS that already shares the CFA franc – will together form the West African Monetary Zone (WAMZ). Once the eco is established in WAMZ states, ECOWAS members using the CFA will subsequently be invited to join the union. However, before monetary union is possible in the WAMZ, member states must meet certain fiscal and monetary harmonisation criteria, including on inflation rates, fiscal deficit levels, central bank deficits and financing of gross external reserves.

In 2011 Ghana became the first country to maintain these criteria throughout the course of an entire fiscal year. That year Ghana recorded single-digit inflation, gross international reserves of more than $4bn, a budget deficit of 2% and sufficient funds to cover three months’ worth of imports.

However, the country’s fiscus has been weakened so as to include other WAMZ member states, including Liberia and Sierra Leone, both of which have been hit hard by the 2014 Ebola outbreak. Nonetheless, although increasingly ambitious, ECOWAS remains committed to the goal of unveiling the eco by 2020.