West Africa has multi and diverse ethnic groups. There are also a subtle affiliations based on former colonial masters. While some are very loyal to France and pattern their lifestyles, language of instruction, monetary policies along the France setting, others are known to be loyal to English settings. We always hear stuff like Franco-phone West Africa countries as well as Anglophone West Africa. With this background it may not be difficult to see the challenges associated with a desire for a single currency in the region. It must be acknowledged though that efforts are ongoing to perfect all the grey arrears so the zone can achieve its goal.
As we speak, there are two major currency standards which bring together couples of exchange rate administration. There are about eight countries, known as franc zone which had remained loyal to Euro while few are attached to dollar or pound as the case may be. The transaction cost of these exchanges has not in the past allowed ease economic promotion among the countries. This is traceable to constant and unstable exchange rates. This in many ways has discouraged foreign capital investment among member states also.
But as we know, there are many advantages associated with having a united zonal monetary regime. It can improve, increase trade exports markets. Another online source did capture the essence of a united monetary regime as follow: ‘First, monetary unions tend to foster regional trade as long as they attain a critical mass. Second, regional trade is what drives economic growth, rather than transactions in the context of North/South specialization. The reason for this is that regional trade most often involves the exchange of similar products, avoiding the pitfall of national industries evicted by imports. Lastly, following on the trade, the global economy is likely to take shape around currency poles in coming years. It can also reduce the effect of exchange rate variation’.
As good as this united foreign exchange regime is, the fear of devaluation of a national currency is often present for some member states. Hence one sees why the date of a single currency in West Africa has put on the chameleon clothe. The date was first planned fixed for 2003, later changed to 2005, then 2010 and 2014 which has now been postponed again. Hopefully the new date of 2020 may stand.
The problem has been the inability of member states to meet the convergence criteria. Come to think of the process, there are two groups now: West Africa monetary zone which comprises of Nigeria, Sierra Leone, Gambia, Ghana and Guinea. Unfortunately, Liberia has stylishly moved out. The other group comprises of other 8 Franco phone countries. The agreement was that WAMZ should integrate while the other group also integrates until 2020 when both groups will eventually merge.
Like we observed in the European union Single Currency operation, there are lots of opportunities in single currency but if West Africa countries must fastrack efforts in combating the challenges associated with this and move on. Here are some of the challenges identified by analysts which require urgent attention.
Member fiscal policies and structural policies: at the national level, every member states must ensure proper alignment of fiscal and structural policies to the demands of the agreed standards which will help the strong establishment of the regime.
Multi cultural surveillance mechanism: till date the issue of lack of proper multi cultural surveillance mechanism is still a big issue that must be addressed among member states.
No similar economic structure and policies: While this may not be guaranteed 100%, there must be a concerted effort to achieve above average if the monetary regime marriage must work.
Different blocks and issue of Liberia, cape verde escudo: for the Anglophone (WAMZ) countries, there is urgent need to harmonize different monetary orientations of the member states. The issue of Liberia and cape verde escudo pulling out and moving towards different monetary regime orientation should be addressed.
Absence of a guaranteed signs of a durable monetary union that can be sustained: as at the present, there is no sign of a durable as well as sustainable monetary union. Division and varied desire of some member states may obstruct the success of the single monetary regime.
The level of macroeconomic convergence in the zone remained inadequate relative to the set targets: there is a required standard that have been set in order for the single monetary regime to be set in motion. Till date few of the countries have completely met these standards. They need to move fast so that the new date will not be changed again.
Lastly for now, analysts have also argued the Inflation and fiscal deficit among member states has continued to be the major challenging criteria for member states to comply with. They agreed though that ‘central bank financing and gross external reserves were the more frequently satisfied criteria’. The question then is when will this project become a reality? The economic and development advantages are there but if the foundation is not properly laid, a fall is not far.