1.1 BACKGROUND OF THE STUDY
The adoption of a common monetary policy is part of the process of economic integration. It has to do with member countries giving up their independent monetary policies to have a common central bank responsible for the conduct of monetary policy for the member states. The direct economic cost from transforming to a monetary union is the senior age lost from printing money. The gain in terms of low inflation and increased trade and growth is often a core reason for joining a monetary union in spite of the loss of senior age associated with it. Thus, the preference for a monetary union over independent individual monetary policies hinges on the expected benefits of the integration, which include reduction in transaction costs of cross border trade (including exchange cost), increased market size and trade. These factors are growth enhancing in nature. In connection to this, there has been growing interest in efforts at fostering economic integration at various regional levels, including countries in the Economic Community of West African States (ECOWAS). According to the theory of Optimum Currency Area (OCA), Preferential Trade Agreement (PTA), Free Trade Area (FTA), Customs Union (CU) and Common Market are the initial stages of economic integration, with unification of monetary policy (that is, establishing a single currency) being the next stage. The nature of African continent makes the region to deserve the need for regional economic integration more than other developing countries in the world (Iyoha 2004). Their specific characteristics include poor intra-regional trade, diverse trade and macro policy regimes and infrastructure inadequacy. This general feature is specific to the ECOWAS countries as well.
The actual study for establishment of a common currency for west African state (ECOWAS) and drafting of a programme of monetary and fiscal policies of members states was between 1985 and 1986 period (Arah, 2001). In response to the study, the sub-region monetary co-operation programme involving short and long term measures were seen to be economic flight (Ogwuma 1998). The highest level of economic integration is the monetary union, which involves the integration of trade and micro-economic policies and establishment of a common central bank and a single currency.
The establishment of a monetary union is however consequent on the member states, meeting the convertibility condition of monetary and fiscal prudence and other macro – economic convergence indicators which are the short and long measures term. The short term measures were settlement of areas in the West Africa monetary agency (WAMA), clearing system establishment of a credit guarantee fund, introduction of new payment instrument like ECOWAS traveller’s cheques and extension of the range of products eligible for transactions through the clearing system. According to Ezema (2001) the long term measures include liberation of trade and payment system in all member countries, liberation of all interest and exchange rate, reduction of inflation to a single digit and creation of a single currency zone within the sub-region by the year 2000 (the deadline for achieving the measure by all member countries was set for 1988). However, most member states beat the deadline while the traveller cheques issues was delay due to political and economic muscle flexing between the Unions Economiuqe Manetaire Quest Africa (UEMQA) members and the rest. The traveller cheques afforded one of the most realistic steps towards achieving economic integration and a single momentary zone, but had to suffer several postponements due to various reasons. The initial disagreement among member states was on the modalities for finding the cheques out of the ‘ghost” or imagined position to the members in the scheme of things. In the words of Olajide (2001) at another attempt in 1998, some CFFA zone members did not attend the summit on the ground that the delegates wanted to conclude some contracts with their home governments. This was done without notice even as it suffered postponement for another meeting with France before that of the travellers cheques launch.
In February 1998, at the planned launching in Abuja, all disagreement were resolved under the auspices of an adequate-hoc committee set up by the ECOWAS heads of states composing Cote D’ voice, Ghana, Mali, Togo and Nigeria. Univocally, the CFA zone members were in vanguard of the launching of the travellers cheques in 1999. Ostensibly due to the successful establishment of Euro (the European common currency which will take over the national currencies in Europe in 2004), and therefore effectively terminate the French Support for CFA. On December 15, 2000, heads of state and governments of ECOWAS in Bamako, Mali approved the decision to establish a common currency by 2003. The decision was the result of the initiative take by Ghana and Nigeria in a bilateral economic meeting on December 1999 to adopt a two – track system called FAST TRACK APPROACH (FTA) to the implementation of ECOWAS integration programmes for West African in 2004. The fast track approach recognize the need to have a parallel zone christened West Africa monetary Zone (WAMZ) the UEMOA to work for a gradual merger of the two at appointed period in line with the deadline.
1.2 STATEMENT OF THE PROBLEM
In spite of the numerous efforts made by the ECOWAS member states to establish a common currency in West Africa which will help to foster economic integration international the sub – region by implementing ECOWAS monetary measures, the issue of common currency is still a mirage because of the following reasons;
i. The strength of the economics of these West African countries varies, so there is no common relationship between their monies.
ii. Divergent tariff structure among member countries.
iii. Low level of intra-regional trade in the sub region since less than 5 percent of the total international trade of the sub region is channelled.
iv. The political instability in some of the countries of the sub region.
v. Inability of the proper member states to meet up with the demand of the monetary zone.
1.3 AIMS/OBJECTIVES OF THE STUDY
The main purpose of this project is on the implication of a common currency for West African Sub-region. Other purposes of the study included.
1. To trace the extent to which the ECOWAS member states are committed in establishing a common currency for West Africa.
2. To find out if the establishment of a West Africa common currency will enhance the economic growth and development in the sub – region.
3. To examine some policy measures introduced to boost the adoption of the West Africa common currency.
4. To find out the problem militating against the immediate establishment of the West African common currency and ways of curbing the problem.
5. To proffer solutions, and make recommendations based on the findings.
1.4 RESEARCH QUESTIONS
1. To what extent has the ECOWAS states gone in establishing a common currency for West Africa.
2. Will the establishment of a West Africa common currency enhance economic growth and development in the sub-region?
3. What policy measures have been introduced to boost the adoption of West African common currency?
4. What are the problems militating against the establishment of West African common currency and ways of nipping these problems on board?
H0: The establishment of West Africa common currency will not enhance the economic growth and development in the region
H1: The establishment of West Africa common currency will enhance the economic growth and development in the region.
1.6 SIGNIFICANCE OF THE STUDY
It is hoped that the finding and recommendations of this project will.
i) Be a partial fulfilment of the requirement of the award of Higher National Diploma in accountancy.
ii) Enable ECOWAS member states to know the problem delaying the establishment of common currency for West Africa.
iii) Be a great help to future researchers who will want to share ideas.
iv) Encourages ECOWAS members to show more interest towards the adoption of a West Africa Common currency.
1.7SCOPE OF THE STUDY
The area coverage research of this project is Enugu. The research is to determine the implication of common currency for West Africa sub – region.
1.8LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (net, questionnaire and view).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.9 DEFINITION OF TERMS
Common Currency: The common currency of the EU member states is a significant change in the economic, political and social life of all of them. It is important that the countries get ready for this change and their citizens understand its importance. In order that they recognised the advantages ensuing from implementing the single-currency, but on other hand equally recognised the challenges presented by this process and realised also the possible partial disadvantages.
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