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).
After its introduction, the goal is to merge the new currency with the West African CFA franc (used by the French-speaking members of ECOWAS since 1945) at a later date. This will create a common currency for much of West Africa.
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. Up to the fiscal year 2011, only Ghana has been able to meet all the primary criteria in any single fiscal year.
The four primary criteria to be achieved by each member country are:[
1.A single-digit inflation rate at the end of each year
2.A fiscal deficit of no more than 4% of the GDP
3.A central bank deficit-financing of no more than 10% of the previous year’s tax revenues
4.Gross external reserves that can give import cover for a minimum of three months.
5. The six secondary criteria to be achieved by each member country are:
Prohibition of new domestic default payments and liquidation of existing ones.
1. Tax revenue should be equal to or greater than 20 per cent of the GDP.
2.Wage bill to tax revenue equal to or less than 35 per cent.
3.Public investment to tax revenue equal to or greater than 20 per cent.
4.A stable real exchange rate.
5.A positive real interest rate.
The goal of a common currency, first in West African Monetary Institute(WAMI)/West African Monetary Zone(WAMZ) countries – The Gambia Ghana, Guinea-Conakry (which is French speaking but does not use the CFA franc), Liberia, Nigeria and Sierra Leone – and later in the whole ECOWAS area, was officially stated in December 2000 in connection with the formal launch of WAMZ. The Eco was first planned to be introduced in 2003, but this was postponed several times, to 2005, 2010 and 2014.
A meeting in December also established a plan to begin work to merge the Eco with the CFA franc immediately upon the launch of the Eco; this was planned to be achieved by 2020
In 2001, the West African Monetary Institute (WAMI) was set up with headquarters in Accra, Ghana. It is to be an interim organisation in preparation for the future West African Central Bank. Its function and organisation are inspired by the European Monetary Institute. Thus, WAMI is to provide a framework for central banks in the WAMZ to start the integration and begin preliminary preparations for the printing and minting of the physical money, just as EMI did before in the Eurozone before the introduction of the euro. The current director general is J.H. Tei Kitcher
Assessments of member countries’ efforts to meet the criteria back in 2012 were very bleak. The performance scorecard presented at a meeting in 2012 showed that overall GDP growth was projected to decline to 6.9% in 2012 from 8.7% in 2011. The convergence scale of the whole WAMZ area was also projected to go down from a score of 79.2% in 2011 to 62.5% in 2012; as no member met all the convergence criteria. The average annual inflation rate also increased from 11.6% in 2011 to 12.6% in 2012. – As a result of member states inability to meet one major criterion needed to necessitate the implementation of the common currency, postponement occurred.
Currently, leaders of a 15-nation West African bloc have called for greater structural reforms as they step up efforts for the introduction of a shared currency, aimed to be launched in 2020.
In a statement issued late on Saturday at the end of an Economic Community of West African States (ECOWAS) summit in Nigeria’s capital, Abuja, the leaders said they had adopted ECO as the name of the planned currency.
Criteria for adoption
This include member countries having a budget deficit of not more than 3%; average annual inflation of less than 10% with a long-term goal of not more than 5% by 2019.
Countries are expected to also have gross reserves that can finance at least three months of imports.
The bloc, which represents an estimated population of about 385 million people, said it acknowledged a 2018 report which underlined “the worsening of the macroeconomic convergence” and urged member states to do “more to improve on their performance” as the deadline for the establishment of a monetary union approached.