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How it would look like, if ECOWAS has that single currency Buhari rejects

President Muhammadu Buhari, has kicked against the Economic Community of West African States’ (ECOWAS) decision of having one currency, citing the challenges faced by the European Union, in achieving their set goal, to back his point.

The President who was at the ECOWAS Summit in Niger, Niamey, on Tuesday told ECOWAS Member Countries to tread carefully in pushing for a single currency for the sub-region by 2020.

Buhari maintained that economic fundamentals among Countries continue to differ over the years, making it difficult to pull through with the project by 2020.

He pointed out diverse and uncertain macro-economic fundamentals of many countries, unrealistic inflation targeting, based on flexible exchange rate regime and inconsistency with the African Monetary Cooperation Programme, as possible challenges that could be met in the implementation of the single currency.

“Although, ECOWAS Commission has anchored its pursuit of the new impetus to monetary integration on the information presented to the Heads of State, which were the basis for their recommendations”.

“We are concerned that we have not properly articulated and analysed a comprehensive picture of the state of preparedness, of individual Countries for monetary integration in ECOWAS by 2020”.

Buhari mentioned that Nigeria had earlier withdrawn from the process because its key questions and concerns were ignored and till date, none of the issues has come up as agenda to be considered by the task-force.

“Consequently, the road map which did not involve widespread consultation with national stakeholders is not sufficiently inclusive”.

“This should also consider stakeholders such as the Ministry of Finance, Customs, Parliamentary Groups, Tax Authorities and Immigration Authorities to achieve comprehensiveness”.

However, the President of ECOWAS Commission, Marcel Alain de Souza, said the single currency for West African sub-region was a laudable and historical project, regretting that it had taken too long to be actualised, and adding that the creation of a Central Bank for the West Coast would accelerate the process.

One of the challenges of single currency is loss of sovereignty. This means that a country adopting the common currency, has to give up its monetary policies to the Body controlling the Union, like in the case of the European Union, all the 12 Countries had to give up their monetary rights to the European Central Bank, which decides the monetary policies for all the Nations.

Another challenge that could be faced is decrease in interest rates during crisis, may help some but will adversely affect the other.

A demerit of adopting the single currency is the cost of adopting the new currency. Adopting a new currency will pose a very huge cost on the economy.

In adopting the single currency, new negative cross-border spill-overs of fiscal policy can also pose a great challenge, as it can raise the demand for savings, push up long-run interest rate and discourage investment.

There is also the challenge of the difference in languages which can lead to the decrease in the mobility of labour amongst others.

Despite England part of the European Union, it has refused to use the Euro.  When Euro was proposed as a united currency, the then Prime Minister, Tony Blair, stated that such currency must pass 5 test to be accepted.

The five test, credited to Gordon Brown, include:

1. Business cycles and economic structures must be compatible enough that the country could live with the interest rates of others.

2. The system must have sufficient flexibility to deal with both local and aggregate economic problems.

3. Adopting the currency must create conditions conducive to firms and individuals investing in the country.

4. The currency would enable the nation’s financial services industry to remain in a competitive position internationally.

5. Adopting the currency must promote higher growth, stability and a long-term increase in jobs.

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