West Africa nations announced they will be launching a new “common currency” known as ECO to facilitate more frictionless trade in the region. Similar to the euro in the EU, ECO currency will be shared by all the 15 member states nations of ECOWAS – Economic Community of West Africa States. it is expected to debut in January 2020.
Remarkably, ECO is not a digital currency, and it is not built on the blockchain. But being shared by 15 countries and without having an underlying technology complicates its management. Already, there are eight nations in the ECOWAS that use a common currency—CFA—which is pegged to the euro through the French treasury. These nations include Benin, Guinea-Bissau, Ivory Coast, Mali, Burkina Faso, Senegal, Niger, and Togo.
Cutting out that French connection is the main reason why West Africa nations are seeking to implement their own currency. Having an independent currency gives them authority and control to manage their monetary and fiscal policies without any interference from foreign governments. Indeed, countries, particularly, the smaller ones are set to benefit massively in terms of boosted economy. That’s because the ECO currency allows smaller economies in the region to enjoy lower interest rates which in turn leads to more foreign investment.
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Again, we go back to the euro comparison. Some EU members have been reluctant to adopt the euro because joining the euro economic area means giving up control over critical fiscal policies such as the ability to print money. This is one of the biggest challenges of forming a single currency—balancing the interests of both smaller and larger economies.
Nigeria, for example, could be thrown into a difficult situation from the introduction of the ECO currency. Given that the country contributes a whopping two-thirds of the output in ECOWAS, Nigeria could be forced to bear all burden that comes with the Eco. This is economically dangerous because it puts too much of a burden on stronger economies. And if those economies began to falter, the monetary union would inevitably break apart.
Experts have warned about the proposed plans. Andrew S. Nevin, chief economist at PwC West Africa, for instance, told France 24 that there’s no compelling case for ECO currency at the moment:
“(A single currency) seems a little bit premature considering that Nigeria hasn’t even signed up for regional integration in ECOWAS. You should first improve the implementation of existing ECOWAS trading agreements, then improve the physical infrastructure. The third more pressing issue would be the ability to trade in every country’s native currency, without using a third currency like euro or dollars.”
Case for blockchain
There is no denying that African economies could benefit massively from blockchain technology. Blockchain may still be in its infancy, but a number of use cases have already been identified with clearly defined plans that applies to the ECO currency. The technology eliminates powerful intermediaries like banks and credit card providers by incentivizing people to participate in the verification of transactions. This could also help to lower the costs of executing transactions while also ensuring that nobody is able to fake the records or carry out fraudulent transactions.
Although there has been no indication whatsoever that Eco might incorporate blockchain technology, doing so would greatly simplify the management of the currency. It offers a new way for member countries to collaborate without needing to trust a centralized authority.