West African businesses can now benefit from seamless trading across West African borders. This is because the Heads of State and Government of countries in the region have finally adopted ECO as the name of the single currency to be issued in January 2020.

Here Are Things To Know About The New Currency

• The currency would fully be in use from January 2020.
• The currency would be used for trade across West African countries. 
• The ECO will work this way: shops, hotels, and restaurants, particularly in the larger cities in Ghana, for instance, may now display prices in both the Ghanaian Cedi and ECO currency and many are likely to accept payment in ECO. However, as the official currency is Ghanaian Cedi, no establishment is under no obligation to accept payment in any other currency apart from Cedi.  
• Consequently, the introduction of ECO may serve as an alternative to the legal tenders in the countries of West Africa who have met all the requirement to start using ECO. 
• In simple terms, for people living in Nigeria, this means that you can now carry, in addition to Naira, ECO, and ECO can be used to buy or sell anywhere in Nigeria as long as the other party is willing to accept so.
• The West African Monetary Agency, the body of ECOWAS in charge of money and finance across the region has said the currency would be based on a flexible exchange rate regime, coupled with a monetary policy framework focused on checking inflation.

In Which Countries Can You Use The Currency?

The currency can be used across the whole of West African countries from January 2020. However, ECO would be used only in the countries that have met the requirement for its use. That is, for any country in the West African sub-region to start using ECO, it must first meet the following requirements:

• It must have a single-digit inflation rate at the end of each year
• It must have a fiscal deficit (liabilities) of no more than 4% of the GDP
• Its central bank must have deficit-financing of no more than 10% of the previous year’s tax revenues
• The country’s gross external reserves must give import cover for a minimum of three months.

Additionally, each country must:

• Prohibit new domestic default payments and liquidate existing ones. (That is, all domestic debts must be paid off first)
• Have a tax revenue base which should be equal to or greater than 20 percent of the GDP.
• Have its wage bill to tax revenue equal to or less than 35 percent.
• Have its public investment to tax revenue equal to or greater than 20 percent.
• Have a stable real exchange rate.
• Have a positive real interest rate.

Right now, it appears Ghana is the only country in West Africa that has met all of the above requirements.

“The single currency for 2020 vision is: let’s find two, three or four countries that are ready. Once they meet up, we follow through with the others cascading in,” said Ken Ofori-Atta, Ghana’s finance minister, at a meeting of West African ministers in Accra recently. 

The seriousness of the ECOWAS leaders on ECO is buried in this communique issued after the 55th Ordinary Session in Abuja:

‘‘The single currency would be issued in Jan. 2020.’’ the communique reads. “We have not changed that but we will continue with assessment between now and then. We are of the view that countries that are ready will launch the single currency and countries that are not yet ready will join the programme as they comply with all six convergence criteria.”

The leaders also instructed the commission to work with West African Monetary Institute and the central banks to accelerate the implementation of the revised roadmap with regard to the symbol of the single currency.

“It [the communique]further directs the commission to ensure implementation of the recommendations of the meeting of the ministerial committee held in Abidjan on June 17 and June 18 as well as preparation and implementation of the Communication Strategy for the single currency programme. The Authority takes note of the 2018 macroeconomic convergence report. It noted the worsening of the macroeconomic convergence and urges member states to do more to improve on their performance in view of the imminent deadline.”

The Benefit of Using The New Currency

• Most of the eight currencies used in the 15 countries of the West Africa region are not convertible. Convertibility is defined as the possibility to freely exchange a country’s currency for foreign currencies. Where they are convertible, their rates are highly volatile ($2 in the morning, $5 dollars in the afternoon) Hence, ECO will help to address the issue of multiple currencies and exchange rate fluctuations that affect intra-regional trade.
• West African countries have the least developed financial sectors in the world. The ratio of bank credit to GDP there is very low. There is no much money in their financial markets, through which money can easily flow across the region. Unlike the Eurozone where payment can be made and settled by banks using Euros and cheques. Payment and settlement systems in several West African economies are still marked by the predominance of cheques in noncash payments. In 2013, for instance, the whole money available in the West African regional market only represented 13% of GDP of the whole of the West African countries put together — this is like 8.5% of GDP for Ghana and 21% for Nigeria, against an average of about 65% for Sub-Saharan Africa. Hence, ECO will open up the market a bit. 

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.

Facebook: https://web.facebook.com/Afrikanheroes/