Could the ECO currency bring a halt to Crypto adoption in Africa?
A meeting held in Abuja, Nigeria saw 15 West African nations, known as the "ECOWAS" (Economic Community for West African States) deep in discussion to launch the "Eco" currency. This new fiat currency is proposed to be implemented across the 15 states which will form a regional bloc. With major uncertainty within the African economy at large, these discussions have been well underway for several years with proposed launches dating as far back as 2000. However, conversations are finally drawing to a close with 2020 being carved out as the year for implementation.
This move has been influenced by the growing dissatisfaction experienced within many African countries. Namely, nations like South Sudan and Zimbabwe have been victims of horrific levels of hyperinflation. Many of us may have come across pictures of individuals handling wheelbarrows filled with bundles of cash to do grocery shopping.
The 15 members of this regional bloc consist of Benin, Burkina Faso, Cabo Verde, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.
Being the most robust economy, one of those fearing the loss of their sovereignty includes the likes of Nigerian President Buhari who is treading cautiously and consulting all stakeholders involved to weigh up all factors to avoid making hasty decisions. Conversely, there are growing concerns that Nigeria would dominate the monetary union as it accounts for two-thirds of the regions GDP responsible by its vast oil supply.
Some of the proposed members such as Ivory Coast are currently using the CFA Franc which is backed by a stable currency issued by France. This is said to be somewhat responsible for stimulating growth within Francophone nations due to low-interest rates. Although it has seen some positive effects, there has been some hesitation to form a union with countries operating with higher interest rates and levels of inflation. Many feel that a transition to the ECO currency will cut ties with what is deemed to be the lingering fragrance of colonialism.
Tokunbo Afikuyomi, an astute economic analyst, mentioned that the proper implementation of ECO will allow for the flow of money to be more efficient across borders by subsiding exchange rate obstacles. He also believes that this move will help to improve trade as it will allow for individual countries to specialise in their areas of strength and trade these for other goods that other bloc members are efficient at producing. The union will also implement a uniform inflation rate as a focal objective.
However, in the same vein, he feels the currency will only flourish if all nations involved are economically compatible. This is not the case currently. For example, with a GDP of $7 Billion, the Guniean economy does not even match the GDP of Nigeria's 13th largest state (Abia) which has a GDP of $8.7 Billion. With such a significant difference in economic stature, this would make uniform concepts such as a trade currency more difficult to execute. With this in mind, the AfDB (African Development Bank Group) has stated in a report that unless such regions can align their fiscal and monetary policies it believes the 2020 deadline for the single currency will most likely be postponed. These four main eligibility factors include:
1. A budget deficit of 3% or less
2. An average inflation rate of 10% or less
3. Financing of budget deficits by Central Bank 10% or less of the previous year's tax revenue
4. Gross external reserves available must match three months worth of imports
In 2016, Liberia was the only country that was able to achieve these requirements. This has led to many being pessimistic as to whether all 15 members will be able to achieve this by the allocated 2020 deadline.
Leaders from these countries have been working closely with WAMA (West African Monetary Agency) to accelerate adoption plans. With many looking to see whether this move would be a progressive step closer towards constructing a digital economy via the integration of blockchain technology, they may be disappointed to hear that there are no plans for "ECO" to function as a digital currency and has no ties with blockchain technology.
It seems like there may be a discord between the leadership demands in contrast to citizens. Google analytics data shows that Cryptocurrencies have actually been trending significantly in Africa when compared to other continents. Nigeria, South Africa, and Ghana have been responsible for the majority of the traffic directed towards "Bitcoin" within the last year. Nigeria and Ghana have also seen to be the top two searchers of the phrase "buy bitcoin".
In other news, Zimbabwe recently saw a ban on the use of foreign currencies within the country which has led to a spike in the trading volume in the region with significant premiums being registered on Bitcoin purchases over several platforms.
Despite the fact there is such a high level of interest in digital assets within Africa, it seems to be that the rate of progress has remained sluggish. The Blockchain association of Kenya reported trading worth $1.5 million but attributed stagnant adoption to a lack of education. With this in mind, many feel the implementation of the ECO fiat currency will stifle the fast-growing crypto interest in thriving regions if governing bodies receive this adoption as a threat.
Is the development and implementation of an ECO currency a step in the right direction for West Africa? Or will it hinder the adoption of Cryptocurrencies/Blockchain technology in Africa?