Digital currencies in Ghana and Nigeria are threatening two decades of work towards a common legal tender in West Africa.
The adoption of the eco (pdf), a new currency for the entire region, would help remove trade and monetary barriers, boost economic activity, and improve living standards in the community of 385 million people, according to the Economic Community of West African States (Ecowas).
Seven currencies are currently in use in West Africa’s 15 countries, with eight mostly French- speaking nations using CFA francs. The remaining countries have their own currencies, none of which is freely convertible. After multiple postponements (in 2005, 2010, and 2014) following its conception in 2003, a workable deadline for the launch of the eco was set for January 2020 but, as feared, it never happened.
Some experts fear the single-currency dream project could be further stunted by the emergence of central-bank digital currencies (CBDC) in West Africa’s economic powerhouses.
Central-bank digital currencies are emerging in Ghana and Nigeria
A central-bank digital currency is the virtual or digital form of a country’s fiat currency. It is regulated by the nation’s central bank. Nigeria and Ghana are the first two countries to roll out such projects in Africa, although Rwanda, South Africa, Tanzania, and Kenya have also been conducting research.
Nigeria partnered with Bitt, a global financial technology company, to launch its CBDC in October 2021, while Ghana hired German firm Giesecke+Devrient for its e-cedi pilot a month earlier.
Although officials from both countries claim that their respective digital currencies are meant to promote financial inclusion by bringing the unbanked into the financial system, the timing of those initiatives oddly coincides with the stumbling effort to get eco off the ground, according to one finance professional.
“At this stage, we are supposed to be talking about e-eco or eco itself, and not the electronic versions of other currencies in the sub-region,” says Ahmed Kone, researcher at Bamako University of Social Sciences and Management in Mali. “If Nigeria and Ghana are testing central-bank digital currencies, it indicates that they are losing faith in the common currency project.”
More stumbling blocks to a common currency
While the idea of having a common currency excites many in West Africa, the project seems a long way from fruition. Four primary convergence criteria must be met by each member country before the eco could be implemented.
- A single-digit inflation rate at the end of each year.
- A fiscal deficit of no more than 4% of GDP.
- 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.
Most of the 15 countries may likely not be able to achieve all of the above criteria for years. Only Cape Verde, Liberia, Ghana, and Togo have met some of them, but not consistently.
The stringent standards constitute a major stumbling block for the eco project, and that could be the reason why some nations in the space are thinking otherwise, says Muhammad Umar, senior fellow at the Nigerian branch of the Centre for Democracy and Development (CDD).
“When I read that Nigeria and Ghana are testing CBDCs it immediately confirmed the fears I was having for the eco,” he says. “Would it happen in 2027 like some are speculating? Would it happen in 2030? Nobody is sure because the criteria are too strict and they don’t reflect the realities of our economies.”
The Nigeria factor
The launch of the e-naira in Nigeria does not come as a surprise to some observers.
“Nigeria ought to play a catalyst role in this project owing to its weight and influence in the region,” says Lawani Babatunde, a Cote D’Ivoire-based finance journalist.“But we are not seeing that because perhaps they feel they have nothing to lose or gain from a common currency.”
Meanwhile, Nigeria is the only country in West Africa with a banknote printer and mint. The Nigerian Security Printing and Minting Company Limited prints the naira, and may likely be selected to mint the future co if member states do manage to figure out the regional solution.
Is the eco even necessary?
Economists are divided over the need for a single currency in the region. While some believe it will promote integration, others question the purported economic benefits for businesses considering the slim volume of trade among the bloc’s members.
Intra-Ecowas trade accounts for just 11% of members’ total trade, which is a somber reflection of a broader situation of the continent where commercial exchange between African countries represents only 15% of broader trade, the lowest globally.
A common currency has proved to be an insufficient panacea for stimulating intra-African trade if we take heed of the experiences from the two monetary zones that share the CFA franc. In the Economic and Monetary Community of Central Africa (Cemac), intra-regional trade lags around 5%, despite more than 70 years of using a single currency.
In the West African Monetary and Economic Union (Uemoa), trade flows a bit more freely, at 16%, but it’s not encouraging, considering that their version of the CFA has been in use since 1945.
However, some advocates of the eco do not want monetary policy and trade to stand as the only motivating factors of the project. A country or region having and controlling its own currency is evidence of independence and sovereignty, says Clement Gbegnon, a former risk manager at the West African Development Bank (BOAD), based in Togo.
“There is currently a strong desire in French-speaking West Africa to do away with CFA francs, which are considered as a colonial relic,’ Gbegnon says. “A currency is an identity. It is like the color of a country’s flag, an emblem, or a national anthem. If we are truly independent and sovereign we deserve our own money and that is what I want the eco’s stakeholders to consider as well.”
Will Ghana and Nigeria forgo CBDCs to make way for the eco?
It remains unclear whether the governments of either country will abandon their respective nascent CBDC projects any time soon to revive hopes for the eco.
Following a ban on cryptocurrency transactions in Nigeria last February, the e-naira has been touted as a viable alternative for cross-border trade and remittance inflows even when it does not possess all the features of cryptocurrencies and stablecoins, and will likely do ecolittle to dampen enthusiasm for crypto in the country.
Some e-naira critics say similar solutions already exist in the country’s financial system, like online banking and bank card transactions. It’s a similar situation in Ghana.
It appears that both projects—Nigeria’s e-naira and Ghana’s e-cedi—are here to stay, as the authorities are unlikely to roll them back considering the significant investments involved until now, and their willingness to embrace digital transformation.
The eventual success of CBDCs in both countries could inspire similar projects in other territories of the sub-region, thus placing the eco further behind the curve.
“CBDCs are looming in the region not only because the eco is not ready, but because it’s not even foreseeable,” says Jonas Soares, associate professor at University of Amilcar Cabral in Guinea Bissau, the only Portuguese-speaking country in West Africa. “If stakeholders cease dawdling over decision-making, take a strong stance, and work diligently towards achieving the common currency all the countries in the sub-region will get behind this intriguing project that has stalled for so long and for too long.”