The Prospect of a Common Currency for the Economic Community of West African States: Lessons from the Eurozone Experience

This study aimed at contributing to the debate of monetary integration in West Africa by using the Eurozone experience as a benchmark to study the ECOWAS prospective single currency project. We found that while the precursors of monetary union theory focused on labor mobility, financial integration, openness, etc. as the preconditions to establish a common currency, payment imbalance, unsustainable external and public debt, private sector credit boom were the main causes of the Eurozone sovereign debt crisis. Furthermore, the Eurozone experience shows that the monetary union increases countries’ vulnerability to international movements. Lastly, the Eurozone mechanism of resolution of the debt crisis shows that a monetary union must always be accompanied by some degree of fiscal and banking union or at least a strict coordination of macroeconomic policies. The ECOWAS countries have for the great majority structural current account deficit, high external debt and rely on commodities export. This situation point out a problem of competitiveness, a reliance on external capital and a vulnerability to changes on commodities prices. We argue that it is imperative for the ECOWAS to solve these competitivity issues throughout a diversification of the economy, a promotion of small and medium enterprise and implementation of import substitution policies. Additionally, the ECOWAS should include in the convergence criteria a benchmarked external debt, current account deficit and an indicator that captures the vulnerability to financial integration. Finally yet importantly, the ECOWAS should accelerate the creation of the common currency otherwise, the various postponements of the launch of the regional currency might discourage the local participants and pose doubt about the credibility of the ECOWAS