West African States to Employ a Single Currency as Demonstated in the Euro Zone
Potential for the West African States to Employ a Single Currency as Demonstrated in the Euro Zone
In ancient era, West Africa was known to conduct business activities and trade amongst them. The trade was among the empires within the region. The system of trade was mainly barter trade. This type of trade was based on exchange of goods for goods. The true value of the exchange was difficult to determine to the extent that some goods were undervalued in the process of exchange. Empires exchanged food crops, animal products, artistic materials, and other trade items. The trade in the region enabled the development of empires that grew even stronger. In the contemporary world, the paper and coin era emerged. States introduced their own currencies that are usually measured in relation to the American dollar. States formed economic corporations such as ECOWAS to help promote the level of trade and business activities within the West African region. Members of the states belonging to the corporations are allowed to move freely between these countries in the process of conducting business.
The exchange between the countries from West Africa region benefits the member states differently depending on the strength of their currency in the international market. This makes countries with stronger currency to benefit at the expense of the weaker states with respect to currency value. To ensure that the problem that existed both in the ancient and contemporary societies is minimized, the currency needs to be streamlined to equal value. Single currency should be introduced in the region to provide equity in the benefits accorded because of trade. Single currency will enhance the process of trade and business activities as individuals will not be required to exchange currencies into the currencies of the state where business is being conducted. This will improve the condition of movement across the states in the process of trade. With introduction of single currency in the region, the volume of trade will increase. The single currency will also enhance the living conditions of citizens of the member state.
Preliminary Review of Literature
In the contemporary society, in relation to the money market, large political entities subscribes to different exchange rates while smaller states subscribes to single currency, (Edwards, 1986, pg 333). Debates have been ongoing on the importance of fixed against flexible currency in the West African region. Since the countries in this part of Africa are considered small states, there should be an emergence of economic entity. The economic corporation should subscribe to single currency to ensure economic stability in the region. According to Edwards, the economic relationship between countries experiencing different currency units will affect the price levels of commodities within those countries. According to a seminar held in Ghana in 2000, some of the West African leaders proposed for the adoption of single currency system that would apply to all ECOWAS members. (Mason & Pattillo, 2004, pg 95). This has been the objective of ECOWAS since its formation and application from 1975.
Adoption of single or common currency among the West African states will ensure common production structures, enhancement of the transfer of factors, flexibility in salary or wages, and improved average prices (Mason & Pattillo, 2001, pg 2). The common currency in the region is factor that must be looked into to promote the economic status of the countries involved. With the development of ECOWAS, there was need to adopt common currency among member states to enhance the regional integration (Oteng, 2006, pg 114). This was the main function of the West African Unit of Account (WAUA). With exception of the export restriction, exchanging currencies within West African states is a nightmare (Lonely, 1986, pg 820).
To curb the existing complication posed against the ECOWAS single monetary policy within the region, there should be an establishment of West African Monetary Zone to ensure the development of common Currency (Adebajo, 2004, pg 61). This program would ensure the introduction of common central bank and common exchange rate within the region. The adoption of the common currency within the West African states is a plan that should have been executed by 2009. Through the ECOWAS Convergence Council, terms of reference in relation to common currency had been revised in 2008 (Gathii, 2011, pg 156). Currency adoption has become essential for the stability of prices and credible commitment. In order to reap the benefits of reduced trade or production cost, Adoption of common currency is crucial in West Africa. This will reduce huge burden cost incurred during exchange of currency among the states (Yehoue, 2004, pg 3).
Transaction within West African region constitutes less than 10% of the GDP of the countries involved in the trade. Compared to Euro zone, this figure is much lower than the option under the adoption of the common currency. West Africa region still have room for improvement in the development of the GDP through establishment of common currency as per ECOWAS objective (Degrauwe, 2007, pg 110). Commissions have been granted opportunities to determine the way forward for the West African states but all points towards the emergence of common currency. This indicates how vital common currency is to the development of the West African economy. With improved terms and balance of trade, states will benefit equal. No state will lag behind in development (Cohen, 2006, pg 214). As early as 1960s, African continent had sought to come up with a common currency to facilitate trade among its members' states. Several economic corporations, ECOWAS included, for the development of regions, adopt this objective (Honohan & Beck, 2007-page 137). It is time to walk the talk for West Africa in adopting the common currency. Common currency will help West Africa create both custom union and custom market. In the custom market created, common currency will facilitate the exchange of products, capital, services, and labor within the territory defined by the economic corporation (Adejumobi & Olukoshi, 2008, pg 138). The currency will be the highlight of ECOWAS achievements.
West African Economic and Monetary Union (WAEMU) has in place plans for the development of a single currency. With implementations of these proposals, the region will benefit greatly from increased volume of trade, free movement of factors of production, and limited currency exchange (SY, 2006, pg 15). West Africa currently engaged in the process of adopting various inventions aimed at expanding economic integration. Some of the inventions include the common currency that will boost the trade volume within the region. Countries within the economic block will benefit equally because of the new plans (Bourdet, 2007, pg 134). West African countries established institutions such as common central bank to help enhance the financial cooperation within the region. This is managed through adoption of common currency that generates custom market. The market will ensure free flow of the process of transaction among the member states of ECOWAS (Falola, 2011, pg 80).
Research Question and Objective
Numerous benefits are attributed to the development of the common currency. This is evident as in the case of Euro zone where the GDP of the states increased by more than 10% form trade transactions. The common currency can be applied in the situation of West African states that share close territorial borders. To improve equality and living conditions in these states, the single currency has to play a critical role. This research is designed to answer the overwhelming question of the potential for the West African States to Employ a Single Currency as Demonstrated in the Euro Zone. The objectives of this include
To determine the benefits associated with the development of single currency in West African region.
To outline the invented plans towards realization of the single currency in the region
To establish the relationship between common or single currency and the custom market
Methodology and Research Methods
Research Strategy and Hypothesis
This research is organized to confirm the underpinning philosophy regarding the single currency in an economy. In order to unveil the underlying truth about the research question, the study is based on the following hypotheses
Common or single currency increases the volume of trade or business transactions
Common currency lowers the degree of disparities between nations within an economic corporation such as ECOWAS
Single currency improves the conditions or environment for business transaction (custom market)
Common currency enhances the percentage of the GDP of countries participating in the trade or products exchange at international levels
Common currency improves the degree of relationship between states involved
This study adopted the questionnaire and interview designs to confirm the underpinning philosophy behind the research question. The research studied 2890 individuals from West Africa region. These subjects were chosen randomly from ECOWAS member states (Ghana and Nigeria). Ten percent of the study population consisted of Chief Executive Officers of prominent business entities engaging in international trade (5% from each country). Six percent of the population was composed of the trade brokers or agents…