5 Things To Know About The New Eco Currency

On 21 December 2019 Ivorian President Alassane Ouattara announced that the West African CFA franc would be reformed, including renaming it the ECO. This will be a new common currency used across ECOWAS states, essentially, West Africa. However, the ECO does not replace or affect the CFA used in Central Africa. Integration of that will come at a later date.

The CFA stands for "African Financial Community in West Africa" and "Financial Cooperation in Central Africa." It is used by a population of about 150 million. The CFA is used in 14 African countries, split into the West African CFA and the Central African CFA.

It has however come to become a relic of the colonial past and people have over the years come to see the currency as something that still enslaves Africans to one of their colonial masters, France. This is not difficult to see as the 50% of the currency’s reserves are held in France, and the French have massive influence on how the currency is used.

Now, let’s look at 5 things to note about the new ECO currency;

1.    NOT A NEW CURRENCY

Yes, you read that right. The “new” ECO currency isn’t really a new currency. Essentially, it is a reform of the West African CFA and a change of name. Yes, there will be new parameters and such to judge the success of the currency. Having a new common currency across the continent and even the region (West Africa) has been something in the works for a while. However, it seems ECOWAS has decided to go with reforming an old currency, rather than starting afresh.

2.    NIGERIA IS NOT YET IN

Even though Nigeria is part of ECOWAS, Nigeria as well as other ECOWAS countries colonised by England do not already use the CFA. This will make regional implementation and integration difficult. In my view, it does not make sense to promote West African monetary integration without involving countries like Nigeria from the onset. Nigeria is a country that accounts for over half of the population in the region and not having Nigeria in from the onset is already a setback. The Nigerian government has however indicated in a thinly, vaguely worded press statement that they are studying the decision (whatever that means).

3.    CRITERIA FOR IMPLEMENTATION

For the currency to be implemented, 10 criteria must be met;

·        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

·        Gross external reserves that can give import cover for a minimum of three months.

·        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.

·        A positive real interest rate.

4.    FRANCE IS STILL INFLUENTIAL

The fact that the new currency was announced during French President Emmanuel Macron’s visit to Ivory Coast says a lot in my opinion. Also indicative of French influence on the currency is the fact that it will be pegged to the Euro. Christine Lagarde, former Managing Director of the International Monetary Fund and French minister of Finance is the new head of the European Central Bank.

5.    LAUNCH DATE

Well, sometime in 2020.

5 Things To Know About The New Eco Currency 5 Things To Know About The New Eco Currency Reviewed by BoomBoxNaija Admin on January 02, 2020 Rating: 5

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