In fact, it was initially proposed that ECOWAS’s remaining seven countries – Cape Verde, The Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone – should first form a monetary union on their own. Once this new currency union had proved functional and valuable for its members, it would be much easier to convince those using the CFA franc to join their West African partners.
After all, the France-backed currency, which is currently pegged to the euro, offers significant advantages, including exchange-rate stability and lower interest rates. Members of the West African CFA franc currency union might not want to risk these benefits by joining an unproven currency union with countries that have a history of high interest and inflation rates. And France itself has an interest in the CFA franc countries’ rejection of the ECO, because they deposit half of their foreign reserves in the French treasury.
Despite these formidable challenges, there are reasons to be optimistic about the ECO – beginning with its potential to accelerate regional integration. A successful ECOWAS currency union would likely spur progress on the proposed East and Southern African Monetary Zones. This would go a long way toward advancing progress on the ambitious African Continental Free Trade Area.
The eurozone’s experience showed how unruly currency unions can be, and how important it is to continue experimenting and adapting. An ECOWAS union will be no different. But if member countries commit to making it work, the ECO could be a boon to regional – and continental – growth and development.
Copyright: Project Syndicate, 2019.