Africa’s Euro — West Africa to Adopt New Multi-National Currency
By: Jonathan Pezzi
The Eco will be adopted by eight West African countries, potentially expanding to the six Central African countries also using a version of the CFA Franc. (Cr: Katrin Gänsler/Deutsche Welle)
New York — Since 1945, the CFA Franc has been the official currency for over a dozen countries in West and Central Africa. This is about to change.
During a visit to West Africa, French President Emmanuel Macron and President of Ivory Coast, Alassane Ouattara, jointly announced the official creation of The Eco, a new currency to be adopted in the region.
The Eco will be initially adopted by eight West African countries, with the hope to expand to the six Central African countries also using a version of the CFA Franc.
The CFA Franc has had a contentious reputation since its inception as many see it as a form of France’s post-colonial control. The CFA’s value is pegged to Euro and guaranteed by France and her former colonies are required to maintain 50% of their reserves in France’s treasury.
Even CFA notes and coins are printed and minted at a Bank of France facility in the southern town of Chamalieres. For many, the scrapping of the CFA is akin to breaking the shackles of another form of post-colonial rule.
Policymakers hope the Eco will solve Africa’s trade problem. The continent does not trade with itself. Overseas trade represents about 80% of the trade within the continent. But a bloc using the same currency will likely reduce barriers to trade.
"I wanted to engage France in a historic and ambitious reform of cooperation between the West African Economic and monetary union and our country. We do it for African youth”, said President Macron after the announcement.
However, this change is not without its controversy. Many critics point out that the Eco is merely a rebranding of the CFA, and not an entirely new currency.
This argument has some merit. For now, the Eco will still be pegged to the Euro but the 50% reserve requirement will be abandoned. Many are frustrated that the currency will still be attached to the Euro. Some experts claim this policy has disadvantaged countries because it prevents the currency devaluation that could counter external shocks and induce industrialization. Many defend this move; however, as it provides financial stability on a continent with a past of inflation crises.
“Even the new currency that was proposed for West Africa ( the Eco) will be printed in France and it’s value guaranteed by France - so when are they going to be ever independent,” said Innocent Monya-Tambi, a physician now living in the Washington DC area.
Another roadblock to the currency is the adoption requirements. The Economic Community of West African States (ECOWAS) has four basic criteria for a country wanting to adopt the Eco.
First, ECOWAS is requiring a single-digit inflation rate at the end of each year. Second, each country is to have a fiscal deficit of no more than 4% of the GDP. Additionally, they necessitate a central bank deficit-financing of no more than 10% of the previous year’s tax revenue and finally, gross external reserves that can provide import cover for a minimum of three months.
There is growing concern of these stringent requirements, as no country in the bloc has fully met these conditions.
"Among the countries set to adopt the Eco by 2020, inflation rates are higher than the benchmark, the exception being Gambia where the inflation rate stood at 6.5 percent, as at 2018. Currently, debt-to-GDP is a staggering 105 percent in Gambia and the ratio is much higher than 20 percent in all ECOWAS”, according to Abdulrasheed Isah, a writer for the Nigerian Journal, Republic.
The Eco is planned to be adopted in July 2020 although an extension is possible.