Answer to Question #226738 in Economics for Crownkinging

Question

What are the benefits Nigeria economy will gain in the propose ECO currency scale-through

Answer 1

The Economic Community of West African States (ECOWAS) is an integration association created in 1975, which includes 15 countries (Benin, Burkina Faso, Gambia, Ghana, Guinea, Guinea-Bissau, Cape Verde, Cote d'Ivoire, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo). More than 385 million people currently live on the territory of the ECOWAS member states, and the aggregate nominal GDP of the association is $ 616.7 billion. To date, the Community has achieved some success in matters of economic integration. In January 2006, a common customs tariff was adopted, and in December 2017 - the ECOWAS customs code, which means that the organization has become a full-fledged customs union. For more than 40 years, on the basis of the Protocol on the Free Movement of Persons, a visa-free regime has been functioning for citizens of the ECOWAS member states. Within the Community, cross-border projects are being implemented to modernize transport infrastructure to facilitate the movement of goods. Taking into account the results achieved, the heads of state of the associations invariably declare the need to continue integration processes in various sectors.

From the point of view of deepening integration, the introduction of a single Community currency seems to be an expedient step, which could provide a number of advantages for the member states. First, the presence of a single currency space would significantly reduce transaction costs and facilitate the development of trade between member countries (according to the United Nations Conference on Trade and Development (UNCTAD), the share of ECOWAS intraregional trade is only 10.7%). Second, a common currency could provide greater exchange rate stability and be less subject to market fluctuations than individual national currencies, which would help reduce inflation in a number of West African countries. Thirdly, a single currency space could significantly increase the investment attractiveness of all ECOWAS member states, since will facilitate business and trade activities throughout the region. However, the introduction of a common regional currency implies the abandonment of national monetary units and thus deprives governments of an important lever of economic regulation. Moreover, the benefits of creating a single currency are likely to be unevenly distributed. If some countries benefit from the establishment of a common regional currency, others will lose. According to experts from the Brookings Institution (USA), Nigeria would receive the greatest benefit from the single currency, Cote d'Ivoire would benefit moderately, and the Gambia would suffer losses. Thus, large and economically strong states are most interested in a common currency, as opposed to small, less prosperous countries, which may be seriously affected by such innovations.