The New West African Currency Postponed For Now

Governors of the eight countries of the West African Economic and Monetary Union (WAEMU) and the wider 15-member Economic Community of West African States (ECOWAS) anticipated the French colonial CFA franc’s replacement would be set in place by the end of this year.

The acknowledged criteria among WAEMU affiliates for the currency’s launch were national budget shortfalls to be held at or under 3% of GDP (gross domestic product).

Nevertheless, Ouattara said reporters in the city of Bouafle on Saturday that in light of the economic punch from the coronavirus epidemic, he does not envision this being available within the following few years and hence does not suspect the eco to be realized for another three to five years, as reported by Reuters.

The IMF predicts that the Sub-Saharan African economy will shrink by 3.2% in 2020, its worst slump ever recorded

The CFA franc, including both the Central African XAF and the West African XOF, is currently tightened to the euro at CFA 655.96. The coronavirus crisis’s appearance and the associated reduction in commodity prices set the currency underweight as skepticism rose over whether the several central banks (the Bank of Central African States and the Central Bank of West African States) could support the peg.

A slowing down of the epidemic and the French Treasury assuring the peg eased the pressure somewhat in May. Currency balance broadly supported the economic hit to the area at the height of the crisis, as stated by the NKC African Economics, with inflation assumed to remain almost reduced, notwithstanding external pressures.

Nonetheless, NKC economist Leeuwner Esterhuysen advised that the warning of the second wave of infections, especially in Europe, could put the currency under further pressure this year.

Choosing a new, sovereign currency could decrease the region’s dependence on monetary improvements in Europe but may take on a whole new set of obstacles, Esterhuysen stated in an announcement on Monday.

There are worries that Nigeria would control increases in FX markets with its massive reliance on oil, possibly continuing unnecessary currency uncertainty. Simultaneously, regional economic concentration criteria set out for the currency also seem unattainable due to heterogeneity between member economies.

Esterhuysen preceded that as a consequence, the intended switch of the CFA franc with the eco would require additional clarification in the upcoming years before it can be completed.

That said, West African governments’ short-term focus will be on decreasing spending and increasing tax bases to rein in funds deficits as the initiation of the new regional currency is put on pause, for the time being, he reasoned, projecting that the prevailing CFA franc and its current euro peg would prevail in place for the foreseeable future