The common currency for five West African states, the ECO, whose launch has been postponed twice already, will become legal tender at the end of 2009, a senior official of the West African Monetary Institute (WAMI) said on Wednesday.
Mr. Odiaka Chris Okolie, Director of Operations of the Accra-based WAMI, expressed optimism that the ECO, a common currency for Nigeria, Ghana, Sierra Leone, The Gambia and Guinea, would be introduced in December 2009.
“With regard to the qualitative criteria, a lot of successes have been chalked in the area of policy harmonization of cheque standards, payment systems laws, financial sector integrations and currency convertibility,” he said.
The new currency would facilitate cross-border payment of transferring funds when the ECO becomes functional, which would also put in place the single payment system.
At present, only two out of the five-member countries – Nigeria and Gambia – have met the four convergence criteria for the introduction of the ECO.
The primary convergence criteria are: Budget deficit (excluding grants) as a ratio of the GDP should not exceed four per cent; Central bank financing of budget deficit as a ratio of the previous year’s tax revenue should not exceed 10 per cent in 2000/2005; Consumer price inflation (end-period) should be single digit and a floor on gross external reserves should be at least three months of current imports.
The secondary convergence criteria include: No accumulation of new domestic payment arrears and liquidation of all old arrears; Tax revenue as a ratio of the GDP should be less than 20 per cent and the wage bill as a ratio of tax revenue should not exceed 35 per cent.
Others are that domestically financed public investment as a ratio of tax revenue should be at least 20 per cent, while the central parity of nominal exchange rate determined on 31 December, 2003 should be maintained with 15 per cent fluctuation band as defined by WAMZ Exchange Rate Mechanism (ERM-II).
Ghana, Guinea and Sierra Leone are yet to meet all the four.
According to the rules governing the issuing of the ECO, if two out of the five member states are able to meet all the primary criteria before 2009, it could still be introduced.
Mr Okolie said WAMI had made headway in instituting an Electronic Automated Cheque Processing System to facilitate transfer of cheques from one bank to another through the clearing system of the various banks.
He said this would help eliminate manual cheque processing, which had a long clearance period, and promote a sound regional payment system to further economic integration within the Zone.
Mr Okolie said the Convergence Council had approved the establishment of a Single Payment System Law that would facilitate easy disputes resolution and increase the confidence of the system operators.
He said a common Real Time Gross Systems (RIGS), which would handle large volumes of inter-banks transfer payment, had also been adopted by all the five-member countries.
Ghana and Nigeria already have the RIGS but plans are being made to make both systems compatible to a WAMZ RTGS system.
Mr Okolie said a study was being conducted on harmonising stock exchanges of Ghana and Nigeria to promote cross-border trade and listing of shares.
“The ultimate goal of the integrated regional capital market is to enhance investment and output by removing constraints in capital account convertibility in the WAMI,” he added. Panapress