One of the most significant developments in West Africa over the last three decades has been the formation of Economic Community of West African States (ECOWAS) in 1975. The main objective of ECOWAS was to create an economic and monetary union for promoting economic growth and development in the West African sub-region. These included, the elimination of tariffs and quotas on the import and export of goods between member countries, the establishment of a common external tariff, the abolition of obstacles to the free movement of people, services and capital between member states and the establishment of common policies for agriculture and transport.
This article presents the importance of West African Monetary Institution to the economic growth on member states. The importance of international monetary cooperation has been recognized for a long time in West Africa. A regional central monetary institution is envisaged to harmonize economic and monetary policies, liberalize trade in the region, supervise members’ balance of payments, provide members with better access to the resources of the primary international institutions and also offer the community a better instrument at the world’s collective bargaining table. A special function of such an institution would be to offer advice and guidance to the whole region on monetary matters on the basis of the study of the special conditions and needs of the community.
The Eco is the proposed name for the common currency that the West African Monetary Zone (WAMZ) plans to introduce in the framework of Economic Community of West African States (ECOWAS). For the Eco to be implemented, ten convergence criteria, set out by the West African Monetary Institute (WAMI), must be met. These criteria are divided into four primary and six secondary criteria. The four primary criteria to be achieved by each member country are: a single-digit inflation rate at the end of each year, a fiscal deficit of no more than 4% of the GDP, a central bank deficit-financing of no more than 10% of the previous year’s tax revenues and Gross external reserves that can give import cover for a minimum of three months. The six secondary criteria to be achieved by each member country are: prohibition of new domestic default payments and liquidation of existing ones, tax revenue should be equal to or greater than 20 percent of the GDP, wage bill to tax revenue equal to or less than 35 percent, public investment to tax revenue equal to or greater than 20 percent, a stable real exchange rate and a positive real interest rate.
Similar to the euro in the EU, ECO currency will be shared by all the 15 member states nations of ECOWAS – Economic Community of West Africa States. It is expected to debut in January 2020. The single currency will facilitate trade, lower transaction costs and facilitate payments amongst Ecowas’ 385 million people.
The switch to the Eco is expected to provide a stimulus for bilateral trade between member states in WAMZ. One factor behind the bilateral trade expansion is the elimination of transaction costs that constitute a non-tariff barrier to foreign trade.