Currency Convertability In The Economic Community Of West Africa States PDF Download

In recent years, there has been a notable increase in the efforts to establish a monetary union within the Economic Community of West African States (ECOWAS). Initially scheduled for implementing a common currency in 2003, ECOWAS had agreed to introduce a common currency called the Eco by 2020. However, due to the COVID-19 pandemic, the implementation of the Eco currency was postponed until 2027. This study adds to the existing research on the feasibility of the Eco as a common currency for ECOWAS. It adopts the framework proposed by Bayoumi and Eichengreen (1997) to operationalize the Optimal Currency Area (OCA) theory. Using OLS estimation, the study models the relationship between OCA conditions and the bilateral nominal exchange rate volatility (BNER) among West African countries from 2000 to 2021. The study's findings indicate that the Eco could be considered feasible for the countries within the West African Economic and Monetary Union (WAEMU) and Cape Verde, The Gambia, Guinea, and Sierra Leone. However, Ghana and especially Nigeria do not meet the OCA conditions to the same extent as the other countries. Consequently, an immediate monetary union encompassing all ECOWAS member countries may not be feasible. Nevertheless, the study's policy implications strongly advocate for a gradual integration approach, similar to the Economic and Monetary Union of the European Union (EMU).