ECOWAS SINGLE CURRENCY ( ECO) : How SMEs Would Benefit.
- Chuzy Ezike –
The Economic Community of West African States ( ECOWAS) is a regional political and economic union of fifteen countries located in West Africa.
They have agreed to adopt a single currency called the ECO. The single currency will facilitate trade, lower transaction costs and facilitate payments amongst estimated ECOWAS 401 million people.
▪︎Lower Transaction Costs: A single currency would encourage trade and tourism across borders in the single currency area. Business travelers and tourists to ECOWAS countries in the ECO currency area would not have to worry about exchanging different currencies and loss in transaction costs ( BDC commission ).
▪︎ Price Unification and Transparency: Within the single currency union all prices would be quoted in the same currency and this facilitate easy price comparison. Consumers could compare the ECO prices of say Palm oil in Nigeria and Ghana with ease. This would encourage more cross borders businesses.
▪︎ Eliminate Exchange Rate Fluctuation: Businesses who operate within the ECOWAS currency area would no longer have to worry about exchange rate fluctuation. Exchange rate fluctuations affect small businesses more than big multinational.
▪︎ Market Expansion: Lower transaction costs, price unification and elimination of exchange rate fluctuation will give incentive for companies to expand their markets within the single currency area. This would also generate investment and employment.
NAIRA AS AN ANCHOR CURRENCY FOR ECO
Nigeria’s Naira is often seen as the likely anchor currency for ECOWAS, due largely to country’s sheer economic size and political importance. The role it is expected to play would be akin to the one played by the German Deutsche mark in the period leading to the introduction of the Euro.
Unfortunately, as at today, the true value of Naira remains unknown as the Central Bank of Nigeria (CBN) currently uses foreign reserves to mechanically manipulate the exchange rates. As a result of that, Nigeria now has a multiplicity of exchange rate windows.
Despite these possible benefits, a single currency will only work if all the countries involved are economically aligned, which is not the current case.
However, the single currency if properly implemented will improve trade by allowing specific countries to specialize at what they are good at, and exchange it for other goods that countries in the bloc produce more efficiently.
It would also help to address the region’s monetary problems like difficulty in converting some of its currencies, and lack of independence of central banks.