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Who will be the Sovereign Guarantor of the ECOWAS Common Currency (ECO)?

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Fri, 17 Jul 2020 Source: Kofi Ali Abdul-Yekin

Who will be the sovereign guarantor of the ECO if the ECOWAS (Economic Community of the West African States) itself is not sovereign to do the Africans expect her to do? If the UN (United Nations) is incapable of having it own universal currency, simply because the universal body is not sovereign, how rational is it for any one to hold a false elusion of the ECOWAS to have the ECO, without first transforming the regional institution into a sovereign body?

We shall be doing ourselves a great lot of good by asking for what is the ECO, to have a better understanding of what we are talking about, than assume everyone knows. The term ECO is the official name adopted by the Authority of ECOWAS (Economic Community of the West African States), to serve as the Community's Common Currency, when it eventually come into use. So, using the layman's version for the word "currency", the ECO is to become the common "money" hopefully to be use as the medium of exchange for goods and services, by all the fifteen West African countries. So, the over 350 million population of West Africa will all use this ECO in their daily lives, in place of the different currencies at the moment, if everything goes as plan.

The above answer then force us to ask a follow up question of, what then is money? We all learnt in our basic education that the term "money" is simply use for any item accepted by a people, as their medium of exchange for goods and services. In actual fact, money is not just a medium of exchange for goods and services but equally a tool by which sovereign nation's policy makers control their economy. Money is therefore the mechanism by which sovereign nations control their economic activities, which allow sovereign economies to measure, understand, know and direct all their activities, in the areas of economics, politics, social and culture.

In the modern world, money is just everything to every one and to all nations, because of its ability to connect all relationship among human and non human beings together.

Very important as money is to our lives, money is actually nothing in itself, but for the activities going on within the economy to which the item of money is associated, to give the money its value. So, the nature of the activities going on in the specified economy, as well as the economies relationship among economies, in terms of quality and quantity of productivity, determine the value of the currency of the economy under consideration.

The ECO is therefore about the merging of the West African economies into a single economy, and controlling these economies together for a better level of productivity. Effective coordination of these economies is therefore very fundamental to the survival of the ECO. So the introduction of the ECO is not just about a common currency for the exchange of goods and services across West Africa but, equally the introduction of a common tool of controlling the fifteen economies of West Africa together for a better economic environment.

The year 2020 will have been a historical landmark in the annals of the West Africa common economy, if the much awaited ECO has come into use. Alas!! The obvious is, the West African electorate is less likely to be earning his or her income in the ECO this year, because the complicated brain of the West Africa invisible gods, are making it impossible, to address the fundamental challenge of sovereign ECOWAS, to make the scheme workable. The much awaited dream of using a common currency by all the ECOEAS15 (fifteen ECOWAS Member countries), does not look like materialising this year and the contentions are more of against, than in favour.

The most fundamental problem of the ECO is the question of who is going to be the sovereign guarantor of the common currency? Who is going to be responsible for centrally coordinating the 15 autonomous economies in whose common interest, the common currency is serving as a tool of actualizing?

And critical as the above question of who is going to be the sovereign custodian of ECO is, the challenge is not a concern in the mind of any West African heads of states, talk less of the ordinary person on the street of West Africa in whose name the ECO is coming into existence. Like the layman think of money as a spiritual item, powerful and capable of taking care of itself, so do the heads of the states believe if they jointly set up a bank, the body will evolve a sovereign role to manage the ECO. Sad, banks do not just work that way, else the UN would have set up its own bank to circulate a Common International Currency.

Every West African genuinely want the ECO but the question of how the currency will be manage, seem to elude us all. Interestingly enough, if a question is not ask regarding a concern, then nothing will be done about the providing a solution, as no answer to that particular problem will be given.

There is no economy in the world, existing in the form of a union of sovereign nations that uses a single currency, without a common sovereign custodian to serve as the currency's sovereign guarantor. So, every sovereign currency in the world must have a sovereign guarantor, to serve as a custodian and trustee to the currency. The role of the sovereign guarantor is not only critical to the supply and demand of the currency, but also responsible for matters relating to the abuse or misuses of the currency, as well as the economic performance of the various autonomous components. Therefore, if the ECO is going to be a sovereign currency, then the ECO must have a sovereign guarantor for the money to be a legal tender, without which the currency will not be able to serve as a medium of daily exchange of goods and service.

The idea behind the ECO is inform by the EURO model, where the Euro as a currency became a legal tender, use across most of the EU (European Union) member states in their daily transactions, as a medium for the exchange of goods and services. The Euro is the European Common Currency introduce by the EU in 2001 as a sovereign currency, guarantee by the EU that assume its sovereign status by the regional institution's reform associated Maastrich Treaty of 1992. What the Euro did was to replace the various currencies in use by the EU sovereign member countries, to make the separate economies into a real single economy.

The first step the Europeans took is to make the EU to assume a sovereign status by the Maastritch Treaty or Treaty of Rome. The Europeans then put into practice the aspect of the treaty that allow

all electorates of the EU member states to vote directly for their EMPs (EU Members of Parliament), on the basis of universal adult sufferage. The election then made the MPs to get their sovereign mandate from the electorates, allowing an EU wide legislative body to automatically transform the institution of the EU as whole, into a sovereign body. The sovereign status then manifest itself in all the EU institutions, organs and departments, to allow the introduction of an EU common Currency to be possible. The sovereign authority of the Union then allow it to serve as the guarantor of her sovereign currency, making it a legal tender available for adoption by member states. That election of the EU MPs by the member states electorates, allowed the MPs to pass into law which made the ECB (European Union Central Bank) into a sovereign bank, acting as the financial regulator of the Euro on behalf of the Union, and also made all the central banks of the EU member states to be answerable to the ECB.

What is in contention in the West Africa is, who is going to be the guarantor of the ECO? The irony is, the ECOWAS institution is suppose to be the natural guarantor of the ECO but that will not be the case, without the institution first assuming a sovereign status, to make her a sovereign guarantor that delegate the responsibility to the CBE ( Central Bank of ECOWAS).

Understandably, the layman of West Africa is assuming that the issue of a sovereign guarantor has already been taken care of, since it seem natural to him or her, for the head of ECOWAS member states to give out their sovereign mandates, by delegation to the ECOWAS institution. The fact is, no single ECOWAS institution by the delegated powers of the 15 heads of states, is functioning enough to be entrusted with the ECO. Sad, the principle of sovereign transfer does not work that way.

Since the wisdom of having the West African electorates, who are the real source of sovereign mandate of the ECOWAS, to vote directly for their ECOPAL (ECOWAS Parliament) Members for the institution assume a sovereign status, is not in the gift of West Africans, all other misleading desperate alternatives are unfortunately being resorted to. The sovereign status of the ECOWAS is still not among the option.

It is important to remind ourselves that the ECOWAS adopted some reforms in 1993 that replicated the Maastrich Treaty, with West African electorates voting the ECOPAL Members directly for the ECOWAS to assume its sovereign status to be followed by the introduction of the ECO as a legal tender. Interestingly, those who misled the West African Union to defer the ECOPAL MPs direct election, are the very ones who champion the premature introduction ahead of the election and then came up with the so called Six Convergence Criteria.

The first concern the fifteen countries of West Africa are made to preoccupy themselves with, are the so called Six Convergence Criteria, prescribed to be the fundamental conditions, to guide the introduction of the ECO. The so called convergence criteria are said to be; i) a budget deficit below 3% of GDP; ii) public debt of no more than 70% of GDP; iii) inflation of 5% or less; iv) a stable foreign exchange rate; v) gross foreign-currency reserves must be large enough to provide at least three months of import cover; and vi) the central-bank financing deficit must not exceed 10% of the previous year's tax revenue.

While the West Africans are busy with this academic scam meant for Level One macro economic theory classes, no one seem to realise that the theory above where never met by the eight West African Francophone countries in 1956, when they assume the use of the CFA as their common currency. Does any one even remember to ask whether such conditions were met by the West African Anglophone colonies when the British introduced the British West African Pound in the 50s to her colonies? Equally, these so called convergence criteria where not the conditions in the recent introduction of the Euro in 2001, when over twelve EU sovereign nation adopted the common currency.

In all the above instances, the sovereign guarantors are all what were needed. France played the sovereign guarantor's role for the CFA, Britian did that for the BWAP and EU serve as the sovereign guarantor for the Euro.

The fact is, for the next one-thousand years, no single country of the ECOWAS-15 will meet any of the criteria.

The strange thing is, the introduction of the ECO is sold to the West African as an end in itself, for which a state of economic perfection must be met by every one of the ECOWAS-15 to enjoy, instead of the ECO serving as a means to an end of making the economies better. So rather than having the introduction of the ECO by the CBE to serve as a means of supporting the ECOWAS-15 to evolve the capabilities of overcoming the criteria listed above, the ECOWAS-15 are being ask first to overcome the very problem the ECO is to solve by the collective effort of the ECOWAS-15, before the ECO come into existence. The above implies, the ECO is not going to be ensuring that all member states conform to the Bank's regulations and policies, for a common healthy regional economy, but will sit-by for every member state to do as they like.

The above scenario is like asking an addicted junky to first relieve him or herself of drugs, before being allowed into a detox facility. Or even imagine a pastor preaching to prostitutes to stop prostitution in a world of endless customers, before entering the Kingdom of God, when all it takes is to get the prostitutes first into God's kingdom, where the holy life of God and his faultless angels make prostitution unattractive, thereby forcing all prostitutes into celibacy, in a world where no one patronise prostitutes. In short, if demand ceases, supply stop.

So, like France has been doing with UEMOA (West Africa Economic and Monetary Union) states, regarding their financial discipline, to give the CFA the credibility it has to date, the ECO will enjoy the same status.

The next option seeming to be the fate of the ECO, is the France Approach. Like the French did in 1956 with the introduction of the CFA to the UEMOA states (Benin, Togo, Cote d'Ivoire, Burkina Faso, Mali, Senegal, Guinea Bissau and Niger), France is again stepping in to be the sovereign guarantor to the ECO. Ironically, France is not wasting anyone's time with any six criteria and therefore proving that the so called convergence criteria lump on the ECOWAS-15, is a mere farce. Fierce in resisting the French approach, is the ECOWAS member state of Nigeria. The West African largest economy can clearly see the risk of allowing France hide behind a common currency, to take over the economic sovereignty of Nigeria and the West African most populous nation is not ready to take such a risk. There is also a risk of France, using her sovereign guarantor role of the ECO to add the CEMAC (Central Africa Economic and Monetary Community) to the ECO area, against the will of the ECOWAS-15.

So, the onus then falls on Nigeria to come up with an alternative, which I called the Nigerian Approach.

What the Approach Nigeria is proposing is, every one of the ECOWAS-15 should keep its current sovereign currency, while the ECO also exist along. So when member states need any amount in ECO, the country will then swap the amount of it currency required in exchange for the ECO. So like the US Dollar and the EU's Euro, the ECOWAS member countries will also have an option of exchanging their sovereign currencies to the ECO.

First, the Nigerian approach is not addressing the core issue of the sovereign custodianship of the ECO, which leaves the French option open. The Nigerian approach is also blind about the convertibility issues, like variations in exchange rates and the challenges of attracting speculators who will be taking advantage of the differences. In short, these speculators will turn the ECO into a form of Casino chip played by faceless gamblers.

The big question of who will be setting this exchange rate which is the duty of the sovereign custodian of the ECO, is also being overlook. Since the ECO will not be a legal tender in the absence of a sovereign guarantor, the ordinary man on the street of West Africa will be excluded from the use of this currency in his or her daily life, defeating the fundamental purpose of the common currency. The Nigerian approach is also failing to appreciate the fact that the exchange rate of money or relationship among international currencies, are not determine solely by market forces but policy decisions and directives of the sovereign guarantors are critical to the value of currencies. Finally the Nigerian Approach failed to see the use of money as policy tool for economic management, essential to the ECOWAS as a single market. Sad enough, the French approach addresses all the critical challenges the Nigeria Approach failed to tackle but for the concern of an external sovereign guarantor and a potential economic predator.

IMF Approach: The IMF (International Monetary Fund) is an international institution set up to safeguard the credibility of the global financial system. The IMF ensures that all the economies of sovereign nations the world over, are in harmony enough to sustain confidence in the global financial system. Therefore the IMF polices all nations and their financial activities to conform to set standards and norms, in achieving the goals. So it then falls on the IMF to step in to any ailing sovereign economy provide financial surgical operation, when such economy is believe to be heading to the rocks. It only make sense for an institution like IMF to play such vital role, as the global economies are interconnected enough for serious disruption in one part affects the whole world's economy.

We should bear in mind that the IMF is not a sovereign body to be a custodian of a legal tender of its own. So what the IMF does is, it resort to other sovereign nations to help out with their currencies to help an ailing economy out of its stress, when such situation arises. This surgical intervention comes at a cost. Since our purpose here is not to talk about the function of the IMF in detail, it is only right to remind ourselves that the IMF pills to ailing economies can be very bitter, painful and even addictive to turn an economy into an economic circus, as there is more to a sovereign economy than just finance. In short, the lenders to the IMF do seek for a pound of flesh in return for their money.

The IMF approach is inevitable when France and EU role of being the sovereign guarantors of the ECO, are withdrawn. What the IMF will do as the last resort is, to stop the use of the ECO all together for the ECOWAS-15 to go back to their old currencies or get private international speculators to take over the custodianship of the ECO. None of the two IMF options are going to be easy on the West African economies.

All the above problems listed could easily be avoided by making the ECOWAS institution sovereign, so that the regional institution like her EU counterpart, can effectively serve as the sovereign guarantor of her currency.

We should simply let the West African member countries electorates vote directly for their ECOWAS MPs!! Now that it look like our 2020 date of introducing the ECO is unrealistic and leaving us with uncertain future, it is only right for us to defer the ECO to early 2022, while we get the ECOPAL MPs elected directly by ECOWAS-15 electorates latest February 2021 for the Union to assume a sovereign status.

We shall later be looking at the fate of the ECOWAS15 and the WTO (World Trade Organization) Rules.

Columnist: Kofi Ali Abdul-Yekin