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, 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, according to a publication by Quartz.
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.
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.”
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. They are a single-digit inflation rate at the end of each year, a fiscal deficit of no more than four per cent of Gross Domestic Product (GDP), central-bank deficit-financing of no more than 10 per cent of the previous year’s tax revenues and gross external reserves that can give import cover for a minimum of three months.
But 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 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 eco if member states do manage to figure out the regional solution.