The news is that ECOWAS wants to unveil ECO, a currency. First, as I wrote to the African Union Congress 15 years ago, I stand on my call: a single African currency would be a disaster for the continent. We overestimate the potential value of this single currency for Africa. My note to the African Union.
We must understand that Africa’s economies are heterogeneous in nature which means that trade shocks will not be easily managed, unlike the European Union, which has a more homogenous economy, and which has been trading together for decades before the adoption of the Euro. So, you do not want a situation where we have this ECOWAS currency, rumoured to be ECO, and Nigeria’s economy which has undue influence on all ECOWAS countries, will blow things up because everyone is using one currency.
A single currency will not remove the rascality of our politicians, and without an autonomous local central bank, many bad things will happen, since a supranational bank will assume control of the ECO. In other words, when Nigeria mismanages, it will not have the power to re-calibrate its currency, and any impact of that will be shared by all ECOWAS states due to the size of its economy. Good People, expect a massive welfare loss when that happens.
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Then, the big one. The CFA Francs zone has been trading for decades. There is no statistical data to show that a single currency has improved intra-trade there. Currency does not solve the problems of ports, roads, innovation and other basic amenities which are needed for trade development and growth.
What do I propose? I support using technology to make different currencies “disappear”, making it possible that a man in Lagos, with Naira, and buying a hat in Ghana, and paying in Cedi, will not even know that he is paying across the border. Yes, the seamless experience would be like he is paying someone in another part of Lagos! But using convergence of currency to achieve that will be a mistake for Africa.
That was my banking & finance doctoral research while in banking, and I did publish many of my findings in the African Union, World Bank, etc. We need to focus on building foundational pillars so that West Africa’s economies could become more homogenous before we can introduce the ECO, if we expect this to deliver welfare gain for the people.
Comment on Feed
Comment: the single currency will Reduce transaction costs. Businesses wouldn’t need to exchange currencies for cross-border trade, saving time and money.
My Response: between currency transaction and transportation distribution costs, the currency cost is insignificant. The currency transaction cost of importing a container from China to Lagos port is insignificant compared to the infrastructure distribution cost between Lagos port and Sokoto. Similarly, the Port of Lome is now the busiest port in West Africa, and many Nigerian importers import from China to Togo and then to Nigeria because those three currency costs are way cheaper than the distribution costs they experience in Nigerian ports where containers could be stuck for weeks. I ran some of the numbers for Africa Union on this paper.
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It doesn’t matter how well and simply you explain these things, the same people who have vehemently refused to increase their brainpower will still disagree, because they are determined to be unteachable. And when I say that Nigeria is mediocre, they will still come under my comment to cry, as though they have a case to the contrary. Ask them to show you just one thing Nigeria is great at, they will not, but still struggle to understand their glaring inadequacies.
Before you start discussing colours of currency and what currency to trade in, first produce the goods, then you will qualify for the other conversation. Whether you create AU Coin or ECOWAS Eco, you are not going to get any better, because you are still facing the wrong direction.
Nigeria is great at afrobeat . that is 1 thing