Scheduled for 2020, the single currency project of the Economic Community of African States of
the West (ECOWAS) seemed to be on the right track, at the end of the last conference of heads of state, on June 29
2019, in Abuja (Nigeria). A consensus had emerged around the denomination " eco " for the currency
single currency, and a flexible exchange rate regime with inflation targeting, had been adopted as the framework for
Monetary Policy. However, the controversial exit of the Ivorian President, Alassane Ouattara, at the beginning of July, pleading
for a fixed exchange rate between the " eco " and the euro, demonstrated that ECOWAS was still subject to
struggles for influence over the characteristics of its single currency. Two fronts confront each other, on one side,
certain countries of the franc zone, led by Côte d'Ivoire, cautious about leaving their "comfort
monetary" current for a new adventure dominated by the Nigerian juggernaut, and on the other hand, the other
countries of the regional entity, which would like to set up an autonomous and flexible currency. This
dissension could call into question the single currency project, and by extension, the integration project
ECOWAS region, in one of its purposes. It would, however, be wiser for some chefs
State of the franc zone, to respect the commitment made on June 29, 2019, in Abuja, in order to consolidate and not
not annihilate the achievements in terms of integration of the last four decades.
However, nothing has filtered through concerning the establishment of "adjustment mechanisms", supposed to respond to the
asymmetric shocks that will affect the future West African monetary zone. In the current debate, many
rely on compliance with ECOWAS convergence criteria, to optimize the implementation of the future
West African monetary zone. Remember that the convergence criteria only serve to standardize
the "preferences on economic indicators", and are not intended to play the role of stabilizer
macroeconomic. As a reminder, an asymmetric shock is defined as a disturbance in the supply or
demand for a type of goods, and affects only part, or even a single country of a monetary zone. By
example, a negative demand shock on oil (fall in oil prices) would negatively affect the
Nigeria, but would benefit other ECOWAS member states, which are net importers of gold
black. Unable to be resolved by consensual common policies, an asymmetric shock harms the
cohesion in a monetary union, while creating divergences in the economic cycles of the countries
members.
Optimal currency area
To guard against asymmetric shocks, a monetary union must meet certain conditions. If we trust
to the “traditional theory of the Optimal Currency Zone (OCZ)”, defining the ex ante conditions for the
formation of a monetary union, ECOWAS does not currently benefit from the characteristics of a zone
optimal money. Inspired in 1961 by the 1999 Nobel Prize in Economics, Robert Mundell, the theory of
Zmo has gradually been enriched with new criteria, with in particular those of Mackinnon (1963),
Kenen (1969), Ingram (1969), Johnson (1970), Fleming (1971), Cooper (1977) and Kindleberger (1986). By
for the sake of simplification, we will confront only the three main criteria of optimality of the theory
Zmo, in the case of ECOWAS.
According to Mundell, the mobility of factors of production (labour + capital) in a monetary union is
an adjustment mechanism to counter asymmetric shocks. Indeed, during shocks
asymmetrical, the migration of workers from “economically depressed countries” to “countries
economically prosperous", allows these countries to regain a balance on their labor market, as well as
than an equilibrium in their trade balance. The migration of capital, on the other hand, makes it possible to transfer the
unused capital from “economically depressed countries” to “economically prosperous countries”. According to
a study by the "International Center for Migration Policy Development", 84% of West African migration
are intra-regional. This West African mobility, generally linked to the search for a job,
explained mainly by the cultural and historical similarities between the different populations of the
sub-region. In addition, a study by the “African Center for Trade, Integration and Development” showed that capital was relatively more mobile in the ECOWAS space than in Europe. At
In view of all these elements, ECOWAS therefore seems to satisfy the criterion of the mobility of factors of
Mundell production. However, in the case of ECOWAS, the mobility of production factors will not be
not a very effective adjustment mechanism, given the already high unemployment rates in the "countries
economically prosperous" of the West African organization.
According to MacKinnon, a significant degree of economic openness between the member states of a union
monetary, leads to commercial dependence, which allows a convergence of their economic cycle,
and therefore implies that they are less subject to asymmetric shocks. However, in the case of ECOWAS, the
proportion of intra-community trade in the total trade of ECOWAS States, does not exceed
usually not the 15%. This weak intra-regional trade is explained by the fact that the economies of the
ECOWAS produces very few finished goods, which does not promote their trade. Note that the
significant infrastructure deficit within ECOWAS, in key sectors, such as transport and
energy, also acts as a brake on intra-Community trade. In view of these elements, the
ECOWAS therefore does not satisfy MacKinnon's degree of economic openness criterion.
According to Kenen, the diversification of the production of the economies of a monetary union allows them to be
less sensitive to shocks specific to one or more of their productive sectors, which implies that they
are more resilient to exogenous shocks, and therefore less confronted with asymmetric shocks. In the case
of ECOWAS, the production structure remains little diversified and is dominated by the tertiary sector, which
rapidly developed in recent years, and by the primary sector. The secondary sector remains little
developed, being the consequence of the failure of the industrialization policies of the countries of the community
West African. Industrialization and an efficient infrastructure policy will play a driving role in the
process of economic diversification of the ECOWAS States, with, as a result, the reduction of their
exposure to fluctuations in the international prices of their raw materials, and the improvement in the balance
of their foreign trade. They will also allow the growing population of the continent to become
a demographic asset, by offering millions of jobs to African youth, which will promote a
sustainable and above all inclusive economic development. At a time of great global debate on ecology, it is
obvious that the African industrialization process should be considered from the angle of respect for
the environment, due to the threat posed by climate change, which is already affecting farmers
from the continent. From this angle, ECOWAS therefore does not meet the criterion of economic diversification of
Kenen.
Thus, the future West African monetary zone will not escape the occurrence of asymmetric shocks, because
of its current non-optimality. It will therefore be necessary to put in place absorption mechanisms,
acting as a "countercyclical stabilizer", in order to make the currency project viable and credible
unique to ECOWAS .
Adjustment mechanisms
According to a fairly widespread conception in the economic literature, a monetary zone cannot survive
sustainably, without a parallel fiscal union within it. A fiscal union, in the
framework of a monetary zone, implies the creation of a "common budget", with the aim of supporting
the activity of Member States going through economic difficulties, through financial transfers. This kind of
budget, fed by national contributions from member countries, serves as a macroeconomic regulator,
by reducing economic divergences, following asymmetric shocks. The establishment of such
budget would therefore improve ECOWAS' resilience to asymmetric shocks.
Critics of this type of budget, particularly in the euro zone, generally argue that the
fact that it entails a loss of "fiscal sovereignty" and a systematic transfer of resources,
“rich/virtuous/efficient” countries, to “poor/vicious/inefficient” countries. It is necessary for them
recall that the logic of "all for one and one for all" is necessary for the survival of any union
monetary policy, which implies that national sovereignist considerations are set aside. This is
certainly the main lesson that we could draw from the European monetary experience. On the
second point, which is more acceptable to him, it will be necessary to set up an independent entity within the
ECOWAS, which will be responsible for auditing the public accounts of the Member States, while having the power
to establish strict sanctions against the latter, with the aim of promoting budgetary management
virtuous. Access to this "common fund" must also be conditional on compliance with the rules
ECOWAS budgets.
It would also be interesting to create an agency within ECOWAS, which would be mandated on its behalf,
to issue the debts of Member States experiencing economic difficulties, following shocks
asymmetrical. By benefiting from the "quality of the signature" of the West African organization, this agency
would give the "economically most fragile" States the opportunity to finance themselves at a lower cost, to
revive their economic situation. Guaranteed jointly by all member states of the union
In monetary terms, these debt issues would strengthen financial solidarity within ECOWAS.
As for the future Central Bank of ECOWAS, it would be advantageous to grant it the possibility of buying the debts of its Member States on the primary market, like the Federal Reserve in the United States.
(Fed). The purpose of this measure is clearly not to monetize Member States' debt without conditions,
but rather to provide the ECOWAS Central Bank with a deterrent tool, which will discourage
speculators to attack West African debts in the event of serious economic crises. Finally, the implementation
place of a unified and solid West African banking union, will be a necessity, to monitor and resolve
potential banking crises in the region.
Interstate solidarity
In conclusion, compliance with the current ECOWAS convergence criteria will play a significant role in
convergence of the economic cycles of the Member States, but will in no case be a condition
sufficient to avoid and fight against asymmetric shocks. Without the establishment of "mechanisms
solidarity adjustments", the future monetary zone of ECOWAS would clearly be doomed to implosion, because
of its non-optimality. With fiscal policy as their only tool, West African governments
would have as their only "action levers", in the event of unfavorable asymmetric shocks, the restriction of their
spending (including social spending) and the implementation of austerity policies, which would lead to
necessarily high social costs. These measures would contribute to increasing the divergences between the
economies of the sub-region, and would end up fueling an "anti- eco " feeling.
The ECOWAS regional integration project contributes to the vision of a united Africa, the outline of which was,
very early, traced by the founding fathers of the West African organization. Taken in isolation, the savings of
ECOWAS, often dependent on those of so-called developed countries, represent nothing in "the pond"
what is the global economy. By uniting through a single currency, the ECOWAS States, which were
the 21st world economic power in 2018 (with a global GDP slightly above 600 billion
US dollars), according to figures from the World Bank, would therefore have the opportunity to position themselves on
the global economic chessboard, and to finally have a voice that counts in the concert of nations.
ByLamine BA
Economist with a master's degree in monetary and banking macroeconomics from the University of Paris
2 Pantheon-Assas