Commercial banks do not see West Africa single currency move as priority
A single currency to be used in the West African Monetary Zone (WAMZ) seems to have hit a snag despite central banks’ effort to make the move a reality, because commercial banks in the region do not see it as a priority.
Some policy analysts and bankers are of the view that the 2015 deadline which has been set by the six West African nations – Ghana, Nigeria, Sierra Leone, Gambia, Guinea and Liberia to launch the single currency Eco, is quite ambitious giving the lack of infrastructure which can assist the rollout.
It is on record that the deadline for the Eco currency launch has been missed for about three times as some countries are still struggling to meet the roadmap targets.
Even though central banks are optimistic of meeting the 2015 target on the single currency, same can not be said about commercial banks.
“Single currency is not a priority for commercial banks,” Joleen Young, Head, Payment Service Providers Franchise of Standard Bank said at a SWIFT Business Forum for WAMZ today August 28, 2012 in Accra.
Joleen explains that there must a creation of a free trade system with a single payment platform in the zone spearheaded by significant increase of intra-Africa trade, which is said to be less than 10%. Africa’s trading partners are largely in Europe and in Asia as well as emerging nations.
She further explains that the zonal countries looking for the Eco, lack the necessary infrastructure for the currency to be launched.
Joleen compared how the French speaking West African countries built their systems to start using the CFA Franc as a common currency.
Indeed it is known that the CFA franc has its exchange rate tied to the Euro and is guaranteed by the French Treasury.
Mr Alain Raes, CEO of SWIFT Europe, Middle East and Africa (EMEA) told the press during the WAMZ Business Forum that the six countries must put in place clear mechanisms converging to the same criteria in the zone and that will help create the single the currency.
Despite playing a major role in the West African financial sector, when asked whether the 2015 was feasible for the single currency, Mr Alain said “It seems ambitious to me.”
During a panel discussion at the forum, the same question came up – whether the currency will come to reality by 2015.
Richard Dorley, senior advisor to the Executive Governor of the Liberian central bank, said he is “cautiously optimistic” about the reality by the deadline.
“Until all infrastructures are in place,” Abu Bakarr Jalloh, Director of Banking, Bank of Sierra Leone, said.
In a 2004 report titled “The challenges of introducing the Eco currency”, Accra-based West African Monetary Institute (WAMI) who is mandated to develop the Eco currency highlighted some of the hurdles hindering the launch of the currency.
The report listed Expediting the Convergence Process; Implementing the Sensitisation Programme; Discharging Financial Obligations; Ratification of Legal Instruments; and Determining Final Eligibility and Sustainability of Monetary Union as the outstanding challenges confronting the currency move.
The objective of the WAMZ is to establish a monetary union characterised by a common central bank and a single currency to replace the existing five national currencies.
The concept of WAMZ was endorsed in December 1999 by the Authority of Heads of State and Government of the Economic Community of West African States (ECOWAS) to facilitate the achievement of the goal of a single monetary zone in the sub -region, following a prolonged delay in its realisation due to economic and political problems.
Policy makers believed that the successful launching of WAMZ would facilitate the merger with the CFA zone to usher in the ECOWAS single currency.
WAMI was then set up to prepare member countries for the second monetary union, by implementing the WAMZ programme, consisting of a set of macroeconomic convergence criteria that member countries were to attain, and building the architecture of the WAMZ.
The successful implementation of the programme would pave way for the launching of the common currency of the zone, the Eco.
But a good track record of macroeconomic performance and sustenance of compliance with the convergence criteria are a precondition for the launching of the Eco. Without macroeconomic convergence, the Eco may not be viable, according to the WAMI report.
These preparatory activities, WAMI explained were to create the environment for the successful launching of the Eco, adding that “without appropriate architecture, the ideal environment for launching the Eco may be non-existent.”
By Ekow Quandzie