As the Economic Community of West African States (ECOWAS) is still battling with teething problems of its age long pet project of single currency, the Africa Union (AU) may have seized the initiative to launch common monetary policy and single currency to accelerate economic integration of African countries.
According to Ms Naglaa Nozahie, a Special Advisor to the Governor of the Central Bank of Egypt, who represented the Association of African Central Banks (AACB) at the third session of the Specialised Technical Committee of the African Union (AU) on Finance, Monetary Affairs, Economic Planning and Integration in Yaounde, Cameroon last week, the initiative is to culminate in the establishment of the African Central Bank (ACB) by AU in 2045.
Late last year, the Africa Export-Import Bank (Afreximbank) said, at the Intra Africa Trade Fair (IATF)in Egypt that it was working on an arrangement that would enable countries trade and settle transactions costs without reference to external currencies.
According to its Director of Corporate Communications, Mr Obi Emekekwue, Afreximbank is already working on the scheme that would enable African countries trade among one another without resorting to other convertible currencies like the dollar, pound sterling, euro and the Chinese renminbi. He disclosed that the bank had already commenced a test run of the scheme, which would be launched across the continent soon. The lack of such deal to facilitate urgent settlement of trade mighteventually truncate the dream of a common market under the African Continental Free Trade Agreement (AfCFTA) regime, according to the Chairman of Vista Bank , Mr Simon Tiemtore.
A report from IATF quoted Tiemtore as saying that currency issue remained a major challenge for the realisation of a unified African continental market, which all stakeholders, including the respective central banks, should resolve to achieve the goals of AfCFTA.
His words: “But trade among nations must continue while the governments take stronger policy actions to sort out these issues because the private sector cannot wait until this was done. Trade among African countries must continue while we look at Afreximbank and the central banks to put in place policies to resolve these issues”.
In order to resolve the currency issue, Ms Nozahie explained that the purpose of ACB was “to build a common monetary policy and single African currency as a way to accelerate economic integration on the continent’’.
She said the AACB held several meetings from 2002 to 2017 and came up with the proposed macroeconomic criteria that should be met by each member state before the African Central Bank could be established:
“Inflation must be three per cent or less by 2038, overall budget deficit must also be less than or equal to three per cent by 2033.Similarly, the ratio of central bank financing to the government must be zero by 2038 and each country must have foreign reserves to cover at least six months of importation by 2038.
“In addition, the ratio of public debt to GDP must be less than 65 per cent while the ratio of total tax revenue to GDP must be more than 20 per cent.
“The ratio of government capital investment to tax revenue must be greater than 30 per cent,’’ she explained.
Nozahie added that experts, who worked on the convergence criteria, also agreed that member countries must maintain the stability of the nominal exchange rate at plus or minus 10 per cent.
But analysis of member countries’ performance, according to her, showed that only 18 countries, out of 52, currently met all the primary criteria for macroeconomic convergence. Nigeria’s inflation figure currently stands at 11.37 per cent.
Although its annual inflation rate fell to 11.26 per cent in October 2018 from 11.28 percent in the previous month. According to the National Bureau of Statistics (NBS), the headline index rose to 11.23 per cent (year-on-year) in August 2018, up from 11.14 recorded in July 2018. It has risen to 11.28 per cent in November and ended 2018 at 11.44 per cent. The rise in the headline index is traceable to the persistent surge in food inflation index. Inflation rate stood at 15.37 per cent in January, 2018.
Recall that the January 2005 AU Assembly in Abuja outlined decisions for the establishment of some African financial institutions to improve intra-African trade.
Part of the decisions was that the African Central Bank should be located in Nigeria, the African Investment Bank in Libya, and the African Monetary Fund in Cameroon.
When it is fully implemented, the ACB will be the sole issuer of the African Single Currency and would become the banker of the African Government and Africa’s private and public banking institutions.
The ACB will regulate and supervise the African banking industry and will set the official interest and exchange rates, in conjunction with the African governments’ administration.