Evaluating the Use of Single Currency by Member States as Medium of Transaction - ECOWAS

Abstract

Adoption of single currency brings a lot of benefits tracking from the lessons learnt from European Union and its adoption of the euro as the single currency for the European countries. Most empirical reviews show that the use of common currency in Europe brought some economic gains to the eurozone areas such as price stability, low interest rate which attracted a lot of investment in the eurozone area and eradication of the exchange rate volatility which has promoted both intra and extra eurozone trade. However, the EMU has encountered a lot of challenges such as lack fiscal discipline on the part eurozone economies and a typical example is what happened to Greece where over spending led to excessive borrowing to finance these spending which landed the country into debt distressed. Since ECOWAS common currency has not been officially operationalized, the evidence from the euro experience will be a valuable asset to the researcher to make inference on the future of the ECOWAS single currency when officially operationalized. The ECOWAS proposal to include the sub-regions in the single currency has already been postponed four times because the Member States have been unable to meet the criteria for introducing the single currency. Most member countries are facing herculean task in meeting the criteria for the implementation of the single currency. Empirical evidence from euro experience attribute economic gains from trade within the eurozone to the use of euro in the eurozone area and hence the use of ECOWAS common currency in the sub-region will also bring a lot economic gains from trade to the member states in the sub-region  and also increase investor confidence through a well stabilized single digit inflation rate and low interest rate within the sub-region and boost economic activity which will trickle down to improve the living standards of the people. Pegging the ECOWAS single currency to the value of euro will lead to currency valuation which may discourage exports and encourage imports which is very critical since all efforts from the individual member states in the sub-region are to discourage imports in order to solve the alarming rate of unemployment in the sub-region. Intra trade within the sub-region will face a lot of challenges since there are infrastructure gaps between member countries to enhance easy link of goods and services within the sub-region. For this proposed West Africa single currency becomes materialized, individual member states should strengthen their domestic macroeconomic frameworks in order to achieve the criteria set for the official adoption of the single currency. However, strong institution should be created to reduce the bureaucracy in export and import transactions and finally, member states should compromise their national interest to regional interest and that is the only way this project can be materialized.

Keywords: ECOWAS, ECO, Challenges, Single Currency, Monitory States.

DOI: 10.7176/JESD/11-6-11

Publication date:March 31^st 2020