The Chairman of the International Monetary and Financial Committee (IMFC) of the International Monetary Fund (IMF), Mr Lesetja Kganyago, has urged the Economic Community of West African States (ECOWAS) to learn lessons from Europe in its quest to adopt a single currency for the sub-region.
He said for the single currency, known as ECO, to be a reality, West African countries ought to understand that the issue of currency union was a political project and just in the same way that the Euro was a political project, the creation of a monetary union on the African continent would have to be a political project.
He said that would, therefore, require a high-level political commitment from all the countries involved.
Mr Kganyago said this at a press conference after the 2019 annual meeting in Washington DC, which was monitored by the GRAPHIC BUSINESS.
He said in order to achieve the dream of a single currency, there were also important lessons and preconditions that ought to be met.
“As the lessons from Europe show us, if you are to create a monetary union, you actually need deeper integration. You need to ask questions about a fiscal union. You need to ask questions about a banking union. And all of these things are complex,” he stated.
He said the complexity should, however, not stop various regions on the continent from embarking on a monetary union.
“So the fact that ECOWAS has decided to go ahead and to do these things if it meets all the preconditions, I am sure that they can go ahead with it as long as there is political commitment,” he stated.
The Managing Director of the IMF, Ms Kristalina Georgieva, for her part urged the countries involved to figure out what would serve their economies best.
“What is important is that they can anchor their currency in a way that facilitates price stability and will be beneficial for their economies.
“This is something that the IMF is following up and is quite keen to support a best possible outcome as the discussions go on,” she said.
Heads of States and governments of ECOWAS, on June 29, 2019 in Abuja, Nigeria after an ECOWAS summit, adopted ECO as a common currency for the region.
The currency is to start circulation in member countries that have met a criteria in January 2020.
The criteria are fiscal deficit of not more than three per cent of Gross Domestic Product (GDP), average annual inflation of not more than 10 per cent and gross international reserves of not less than three months of import cover which have eluded the 15 member countries since 2000.
The first phase of implementation is expected to target seven countries: Cape Verde, The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone, with the second phase expected to include all the 16 member states.
Conceived in 2000, the ECO was planned to be operational in Anglophone West Africa in 2003 but suffered four postponements in 2005, 2010, 2014 and 2015 due to sustained fiscal slippages and little political commitment to the cause.
At the ECOWAS summit on June 29 this year, the leaders agreed that the earlier plan to adopt the ECO in all member countries in 2020 would remain and that they would further roll out a plan to help members meet the required criteria.
However, the new date is also likely to suffer a hitch, according to experts.
In a 2016 report on the ECO, the African Development Bank (AfDB) said it was “likely that the 2020” timeline would also be postponed.
At the Monetary Policy Meeting in July, the Governor of the Bank of Ghana, Dr Ernest Addison, said member countries meeting the convergence criteria had been the difficulty in achieving the single currency dream.
“I believe that the last communiqué which came from Abuja bordered on the fact that the authorities had agreed that member countries that met the convergence criteria by 2020 could begin if they qualified and wanted to.
“In practical terms, if two small countries for example meet the criteria, what will that common currency do? These are very practical issues. We hope that if we see a critical mass of countries, of course countries with significant weight in the GDP for example, that meet the criteria and are able to join, then you can see that you would have a viable common currency arrangement. Therefore, I think it is too early to draw any conclusions,” he explained.