Introduction of common currency ‘ECO’ in West African states: Problems, challenges and impact on the national economies of member states

Abstract

This paper seeks to identify the problems, challenges, and the implications of introducing a common currency 'ECO' in West Africa on the economies within the sub region. Specifically, the study focuses on the mandates of trade, the Customs, Immigration and Monetary and Payment Commission under the institution of the economic order of West Africa States. The augmented gravity model of Rose (1999), Alesina (2000), and Barro and Tenreyro (2002) was used to estimate the effects of monetary union on trade. The result shows that the performance so far of member countries as at the end of 2002 in meeting the convergence criteria revealed that it was inadequate to support the launching of the monetary union in 2004. The study concludes that though the introduction of a single currency will foster trade within the West-African sub-region, most countries have difficulty meeting the convergence criteria that will foster smooth take off of the project. It therefore recommends that the implementation of the single currency and common monetary policy in West Africa should be a gradual process as most countries within the sub-region are not politically mature, let alone to meet the convergence criteria.