The Forth Coming West African Common Currency Economics Essay

Abstraction: Using the historical rising prices rate ( CPI ) information of the would be ‘In-countries ‘ as a standard for finding states within the West African part that would measure up to fall in the Forth coming West African common currency ( Eco ) . The recommended states are ; The Gambia, Nigeria and Ghana. Further, the planned debut of the Eco come December 2009 be deferred to twelvemonth 2013 and the rising prices rate standard be re-defined as runing between 1.8 % and 5.8 % .

ECO – Progressive Evaluation

H. Kwame Afaglo, ( PhD, BSc )

It is imperative that independent administrations and scholarly studies be carried out sporadically on the viability of the construct of the West African Common Currency ( Eco ) . The broader the positions on the new construct by using changing scientific tools to regularly assess the pre- and-post-Eco epoch the better it is for the part in peculiar and the universe at big.

The five ( 5 ) West African states that have agreed to kick get down the Eco are ; The Gambia, Ghana, Guinea, Nigeria and Sierra-Leon. Eco has experienced two postponements in its origin, and the major ground being the inability of all proposed ‘in-countries ‘ to run into the WAMI ( West African Monetary Institution ) standard. Forging a common currency zone comes with some built-in advantages as ; making a common and larger market, working with common financial policies, bettering the economic wellness of the part and deriving from comparative advantage in the planetary market place, stableness, growing, occupation creative activity amongst others.

In the face of the current downswing of the planetary economic system, in peculiar the steep negative gradient of the Western and Asiatic economic systems, it would merely be prudent for faculty members, politicians and other stakeholders to take a 2nd, in-depth and strategic appraisal of the Eco to be launched as planned in December 2009. Care must be taken non to let political expedience to overturn the economic indexs of which the common currency construct flexible joints on. To buttress the economic crust of the Eco, it is obvious that Africa has moved on from the political battle and into the economic stage, of which the common currency is one of the commendable proposals to drive the continent out of its current slow growing province to an accelerated gait of which it has all the resources and knowhow for.

Besides, it is one of the purposes of ECOWAS ( Economic Commission for West African States ) to unify WAMZ ( West African Monetary Zone ) with the bing UEMOA ( Union economique et monetaire ouest-africaine ) ensuing in a larger economic block crossing from the West to Central African part in the really close hereafter. Therefore the debut of the Eco requires divergent appraisals in other to put WAMZ on the appropriate way and lessons from near and afar, pre and station UEMOA and Euro respective developmental procedures could of value.

Xinhua News bureau did corroborate the scheduled introductory day of the month of the Eco as: ‘The 2nd common currency for the Economic Community of the West African States ( ECOWAS ) would take off by December 1, 2009, Governor of the Central Bank of Nigeria ( CBN ) and Chairman of West African Monetary Agency ( WAMA ) , Chukwuma Soludo has said. WAMA, which ended its 36th Meeting in Nigerian capital Abuja on Saturday after reexamining the readiness of its members for the pecuniary integrating, was satisfied with the advancement so far and decided that the debut of the common currency should travel in front every bit planned, harmonizing to Lagos-based Punch newspaper on Monday ‘ . ( 2008 )

Six ( 6 ) point convergence standards

The Six ( 6 ) point litmus trial as earlier suggested by Afaglo H.K. ( 2006 ) as the common barometer as the convergence standards are good spelt out below. Secondary economic information from International Financial Statistics, International Monetary Fund and ERS Baseline Regional Aggregation were employed in this write up in other to derive a better apprehension of the economic systems of the West Africa part from the international concern position point.

Growth – FDI influxs, occupation creative activity and growing of the fiscal sector.

Inflation rate ( consumer monetary value index )

Budget shortage as a per centum of GDP – excluding of foreign contribution towards budget support.

Cardinal Bankss funding of budget.

Exchange rate – inter-currency exchange rates with the US dollar as the criterion.

Currency stableness.

Due to clip restraint, this paper focuses on rising prices ( consumer monetary value index ) as its litmus trial, whiles subsequent write-ups would take attention of other standards.

Inflation

With the current economic crisis ( planetary recession – 2007 and ongoing ) and the turning accents on the usage of rising prices and involvement rate as the sensitive macro-economic tools which forms portion of the solution, it is deserving taking a farther expression at the Consumer Price Index ( CPI ) of the would be in-countries of Eco.

WAMI did put a less than 10 per cent CPI as its standard for making into the West African Monetary Zone.

In the writer ‘s thesis he did strongly suggest a re-look at the rising prices rate standard as: ‘Average rising prices rate being 3.8 per cent of the ECOWAS part as aˆ¦.. with a tolerance bound of A± 2.0 per cent. { The rising prices rate mention twelvemonth is 2005 } Mathematically the proposed standard could be represented as, [ 1.8 % a‰¤ Inflation Rate a‰¤ 5.8 % ] ‘ ( 2006 )

It is apprehensible that a realistic CPI be one of the finding factors of deriving rank into the economic block formation within the proposed pre-introduction epoch. However, would the realizable WAMI rising prices rate standard within the short term with its subsequent recoil to the block be more prudent than a instead hard, long term and yet accomplishable lower rising prices rate standard with fewer deformations to the primary purpose of the brotherhood be preferred? In other words, which of the two proposed rising prices rate standard is prudent or preferred, is it the accomplishable and high rising prices rate within the short term with foreseeable jobs perchance taking to a distortion or a trouble, low, and acceptable rising prices rate standard that can merely be achieved in the long term with minor bugs.

Datas mined from International Financial Statistics, International Monetary Fund and ERS Baseline Regional Aggregation over a sensible period of clip does portray a clearer and long term position of the CPI of assorted ‘in-countries ‘ . By and big, it would indicate the part in a defined way than merely political rhetoric. A tabular and graphical representations would help in the finding the macro-economic convergence standard.

Consumer Price Index ( % ) of Eco member states

Year a†’

State a†“

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Gambia, The

2.50

4.34

3.66

15.13

16.10

27.29

14.23

4.28

1.40

5.20

5.70

Ghana

17.05

13.96

27.10

35.06

22.69

28.75

14.35

14.96

10.91

10.73

16.84

Guinea

1.90

5.10

4.60

5.26

3.03

12.92

17.51

31.40

34.70

22.90

18.60

Nigeria

10.32

4.76

8.79

18.79

13.01

14.05

19.42

13.51

8.24

5.38

8.93

Sierra-Leone

35.53

34.09

– 0.83

2.09

– 3.29

7.60

14.18

12.05

9.54

11.70

12.30

Sourced from IFS, IMF & A ; ERS Baseline Regional collection Dec – 2008

Five ( 5 ) Year CPI Graph of Eco – In states

Gui 20 N Gui Gh 16 SL 12 SL Gam % 8 Gh N 4 Gam 2004 2005 2006 2007 2008 Old ages

Key Meaning Sign

Gam Gambia, The

Gh Ghana

Gui Guinea

N Nigeria

SL Sierra Leone

The Three proposed ‘In-countries ‘ of Eco

State

Equation

Meeting point ( twelvemonth )

Meeting point ( CPI )

Remark

Gambia, The

Y = 12.8 – 1.5x

Gambia to Ghana

12.8 – 1.5x = 18.8 – 2.15x

( 9.231 old ages )

4.8395 %

( based on norm )

Acceptable CPI

Ghana

Y = 18.8 – 2.15x

Ghana to Nigeria

18.8 – 2.15x = 21 – 3.25x

( 2 old ages )

7.38995 %

( based on norm )

Acceptable but on the border of the high side of CPI.

Nigeria

Y = 21 – 3.25x

Nigeria to Gambia

21 – 3.25x = 12.8 – 1.5x

( 4.69 old ages )

5.327 %

( based on norm )

Acceptable CPI

Average

5.307 old ages

5.327 %

Recommendations

A critical expression at the last five old ages consumer monetary value index ( CPI ) information and graph service as the bases for the undermentioned recommendations ;

The diminution in CPIs of Sierra Leone and Guinea are soft. Implying it would take longer continuance to run into the earlier mentioned three states.

Although Sierra Leone and Guinea be impermanent excluded from the birth of the Eco as planned, Sierra Leone be advised to implement drastic economic steps therefore away in order to run into the CPI convergence standard.

Gambia, Nigeria and Ghana are sing an appreciable diminution in rising prices.

The proposed rising prices rate ( CPI ) standard to be adapted must run between 1.5 % and 5.8 % .

The Gambia, Nigeria and Ghana are the most likely ‘In-countries ‘ to run into the rising prices rate standard as proposed in this write up.

The awaited clip for the debut of the Eco should be in the twelvemonth 2013, which is five ( 5 ) old ages from 2008.

It is besides clear that Ghana be advised to escalate its financial policies so as to better on its rising prices rate, since her awaited CPI would be on the border during the debut of the common currency.

Should any of The Three would be ‘in-countries ‘ ( The Gambia, Nigeria and Ghana ) and in peculiar Ghana non able to keep the economic impulse prior to the debut of the Eco, it must be excluded. Else, the immediate post-Eco epoch would see an instability and rendering the pecuniary zone non able to accomplish stableness and uninterrupted growing.