The Eurozone has attracted much criticism following the sovereign debt crisis and near collapse of some of its members. Despite these conditions, the concept of monetary union has not entirely been discredited: plans are afoot in West Africa to expand the existing currency union to include new members, which could see a new currency encompass a region of over 300 million people.
Features and benefits
* Helps to explain what a monetary union is and the impact it can have. * Analysis of the CFA Franc region in Western Africa, assessing both its improvements and failings. * Evaluates the suitability of the Economic Community of West African States as a currency zone, and how the Eco project is developing. * Assesses the Eurozone as the world's largest monetary union, and whether any lessons can be applied to West Africa should they proceed.
Currency Unions are where two or more member states share a common currency. In order to ascertain where such unions would be effective, theory suggests the "optimal currency area". Robert Mundell suggests there are four key criteria to optimal currency unions when adopting the regime. The West African Economic and Monetary Union (WAEMU) have considered its currency, the CFA Franc, a qualified success so far. Another region within the Economic Community of West African States, the West African Monetary Zone (WAMZ), has proposed the Eco currency, and depending on its success, this could be extended across the entire ECOWAS region. The Eco's promise is primarily down to the success of the WAEMU's Franc. It has provided a template for development among the member countries. Intra-zonal trade is some of the highest in Africa according to the IMF, a key component in promoting development.
Your key questions answered
* What is a currency union, and how can it be judged successful? * What is the Eco? * What can the Eco learn from the CFA Franc? * What problems face the Eco's Introduction? * Are there any lessons from the Eurozone for new monetary unions?
Table Of Contents
The Eco: Western Africa pushes for monetary union OVERVIEW Catalyst Summary CURRENCY UNIONS IN THEORY Monetary unions share currency Four key pillars of a successful monetary union Economic and Monetary Union encourages further integration THE ECO'S BACKGROUND ECOWAS is dominated by Nigeria's economy WAEMU is the template for Eco's expansion The Eco will eventually consume the CFA Franc The Eco's convergence criteria BENEFITS OF THE ECO Lower inflation for monetary union Exchange rate stability Convergence criteria help development Promotion of intra-zonal trade Could the Eco have political ramifications? THREATS TO THE ECO Eco is unlikely to be launched on time The Eurozone crisis has damaged monetary union's credibility The Eco project may require relinquishing of fiscal instruments Lack of monetary policy can make economic management more difficult Commitment to the union must be resolute ECOWAS' obstructions to monetary union Asymmetrical member economies Labor mobility: hampered by language barriers and poor infrastructure Nigeria: too big for the union? Economic downsides of monetary union Lower average growth rates compared to wider region If the Franc is not guaranteed, foreign exchange instability would follow Monetary union does not guarantee political stability CONCLUSIONS No to the Eco APPENDIX Definitions Sources Further Reading Ask the analyst About MarketLine Disclaimer