ECOWAS Exchange Rate Mechanism to start in April

Exchange Rate Mechanism (ERM), a building block in the construction of a single currency for five countries in the West African Monetary Zone (WAMZ), is expected to begin operation in April.

ERM is the framework within which the currencies of The Gambia, Ghana, Guinea, Nigeria and Sierra Leone will be linked.

Mr R.D. Asante, Technical Director of the West African Monetary Institute (WAMI), said in an interview in Accra that the broad bandwidth will be plus or minus 15. Each of the ERM currencies will be allowed to diverge by the percentage from the central exchange rate.

He indicated that the ERM will be in operation for nine months but that it will be reviewed in six months with a view to reducing the bandwidth. As part of the institute’s programme, it is to begin close working relationship with the five central banks on the operation of the ERM.

The institute will shortly give operational manuals on the ERM to those central bank officials who will handle the ERM so that they could familiarize themselves with the operations of the mechanism, said Mr Asante.

He felt that judging from Ghana’s performance in 2001, she will be comfortable with the mechanism since her currency depreciation never went up more than 5 per cent. He also noted that the 15 per cent plus or minus bandwith was what the European Union also used for its ERM.

Mr Asante also said a stabilization fund of $100 million is to be set up into, which member countries are to pay their quota. Nigeria is expected to pay three-fifths of the fund and Ghana 17 per cent, for instance.

The Abidjan-based African Development Bank (AFDB) will operate the fund, whiles its administration will be in the hands of WAMI.

The past year has seen a flurry of activities by the institute towards the second common currency. The activities, which began with the opening of its headquarters, included workshops for the public and Members of Parliament in Accra.