ECO: WHAT IMPACT WILL IT HAVE ON THE ECONOMY AND

SOVEREIGNTY OF WEST AFRICAN COUNTRIES?

Article from AFRIC Editorial

The initiative of introducing a single currency used by the countries of the West African Monetary
Zone (WAMZ) owners of national currencies and those of the West African Economic and
Monetary Union (WAEMU) sharing the FCFA is an old dream that could finally become reality in
2020. The new currency baptized by ECOWAS countries as Eco, whose creation has been delayed
many times, is a source of hope for many Africans wishing to get rid of the FCFA considered as a
legacy of colonization. Eco, in addition to being a West African monetary union project, will allow
seven countries in this sub-region that already have their own currency to abandon their local
currency and transition to the Eco. If the criteria of convergence are already sources of discord
within the group and are part of the great challenges, Eco remains an old dream nourished by Pan-
Africanists for a better development of the continent.

Eco, a cure for the FCFA?

Tied to the Euro and supported by France, the FCFA (Franc of the French colonies in Africa) is
considered by many African economists as an outmoded currency, as the former French colonies
have used it for over fifty, since after gaining independence. France, supporter of the FCFA, is
increasingly being criticized by people who accuse her of using the currency as a weapon of neo-
colonialism, to the detriment of the economic development and monetary sovereignty of the 14
countries that still use it. Because these countries are unable to set their interest rates, they are
obliged to pay in 50% of their foreign exchange reserves into the French treasury in order to
benefit from unlimited convertibility of the FCFA with the euro.

Presented as a colonial tax, this money kept in the French treasury according to critics of Paris, is
used for the financing of the French debt, something that France denies. Criticism of France’s
foreign exchange reserves in the African countries it manages, do not only come from the African
continent but also from European neighbours like Italy. Last February, Luigi di Maio, the deputy
prime minister of the Italian council, created a diplomatic quarrel between Italy and France,
accusing Paris of keeping African countries in poverty through the FCFA, thus encouraging the
illegal immigration to European shores. Long before the deputy prime minister of the Italian
council, a German economic newspaper accused France of plundering the continent through the
FCFA. The newspaper revealed that nearly 440 billion euros are transferred by Africans into the
French treasury per year.

The Cameroonian economist Martial Belinga author of the book “Liberate Africa from Monetary
Slavery” argues that: The perpetuation of the CFA franc puts African economies and societies in
a situation of collective schizophrenia. According to him, an instrument built for the colonial pact
helping to transfer African resources to France, then to Europe, cannot serve the needs of local
populations demanding a strong, diversified, sophisticated local economy, responding to a
significant population growth. The Cameroonian economist also argues that the year 2020 which
the Eco becomes effective is symbolic for the future of the continent.

Economic stakes of the Eco

According to the ECOWAS member countries, the common currency will be used to facilitate
payments within the countries of the sub-regions, and also to improve trade in the area and reduce
transaction costs. The single currency will also enable the Central Bank of West African States to
free itself from the trusteeship of the French treasury which holds the foreign exchange reserves of
the FCFA and to play its full regulatory role like the European Central Bank. Regarding the
management of funds removed from the French treasury, the African Development Bank (AfDB)
maintains that the common currency Eco will promote the achievement of joint projects by
African countries or even individual projects.

The use of a single currency in all 15 countries will also ease the movement of travellers in
member countries without having to resort to numerous transactions. Economist Daniel Ndoye
goes further to argue that the new currency will also be an important instrument in the
international monetary system that will allow user countries to resist the upheavals associated with
currency shocks. All member countries will thus be able to benefit from a typical inflation rate.

However, there are divergent opinions on the fluidity of trade between West African countries that
is supposed to guarantee the Eco. For this to be possible, goods should be able to move easily
between the countries concerned. West African countries should also have compliant infrastructure
to facilitate the delivery of their products. It would also be necessary for them to have diversified
economies that allow for the exchange of various products.

But having a large common market is not a won battle because many West African countries
import commodities whose costs are controlled by international markets. It will be difficult for
them to achieve easy trading through the single currency in such a context. The establishment of
the continental free trade zone can nevertheless solve this problem. Nigeria, a major economic
power of the continent, which also enjoys a high demographic potential, fears losing its
sovereignty by the adoption of this single currency, which is why it has carried out numerous
consultations to preserve its interests and protect its vast market. The country led by Muhammadu
Buhari, which holds two-thirds of GDP in the West African sub-region, could play the leading role
in this new monetary zone according to some experts.

On the side of the countries linked to the FCFA, remain concerned about stability, as they
currently benefit from the stability offered by the FCFA supported by the euro, as they have lower
inflation rates than those with a national currency. However the opportunity that given to these
countries by the Eco to be free from the French tutelage and to regain some level of sovereignty is
not to be missed.

Benin, which does not want to miss this opportunity, has taken an important step by announcing
the withdrawal of its reserves from the French treasury in the nearest future. According to
President Patrice Talon, this money will be managed by the Central Bank of West African States,
which will be able to distribute it to other partner central banks around the world. This decision in
the opinion of many observers is a decisive step towards the total abandonment of the FCFA
established since 1945.

Consisting of fifteen members, the countries of the West African Economic and Monetary Union;
Cote d’Ivoire, Togo, Senegal, Benin, Guinea Bissau, Burkina Faso, Niger, Mali and Niger, as
well as those of the West African Monetary Zone comprised Nigeria, Liberia, Sierra Leone, The
Gambia, Guinea and Ghana, these states wishing to use the Eco as a single currency will have to
overcome many obstacles. In order to ensure that the 2020 deadline is not carried forward like the
previous ones, it is necessary for the 15 countries to agree on the criteria required for the effective
circulation of their currency.

Outline
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