- Saleh Nsouli, John McLenaghan, and Klaus-Walter Riechel
- Published Date:
- August 1982
One of the principal aims of the effort to integrate the economies of the 16 member countries of the Economic Community of West African States (ECOWAS)1 is to expand intra-Community trade. This objective is to be achieved partly through the elimination of quantitative and other restrictions on trade. A customs union is to be established in the region over a period of 15 years dating from the entry into force of the Treaty of Lagos, under which the Community was established in May 1975. The trade liberalization program drawn up under the Treaty provides for gradual elimination of import duties and other tariff and nontariff barriers to intra-Community trade, as well as harmonization of external tariffs, over the period 1981–89. As part of this program, several studies have identified a number of impediments to the development of intraregional trade, one of which is the widespread controls and restrictions on exchange transactions throughout the Community that make inconvertible most of the 11 currencies of the member countries.2 Currency convertibility in the region is therefore an important issue in the Community’s efforts to remove obstacles to intraregional trade.
In November 1979, the Committee of Central Bank Governors of ECOWAS requested the ECOWAS Secretariat to undertake a study on the problems of currency inconvertibility in the Community. This decision was endorsed by the ECOWAS Council of Ministers at its meeting in Dakar, Senegal, which also took place in November 1979. Such a study was seen to be consistent with the overall objective of the Community—the integration of the economies of the 16 countries in an economic union. A formal request by the International Monetary Fund for technical assistance in the preparation of the study was approved by the Fund’s Executive Board in May 1980.
Within the limitations imposed by data deficiencies, by differences in the stage of development of the member countries, and by the current balance of payments difficulties of several of those countries, the principal objectives of the study were:
To describe the existing exchange arrangements and exchange systems in the region and to review their effects on intra-Community trade and payments;
To assess prospects for achieving “limited convertibility” (defined here as intraregional convertibility) of currencies, with specific reference to prospects for liberalization and harmonization of exchange controls and restrictions, taking into account the long-term objective of monetary union within the Community;
To determine the conditions necessary for achieving convertibility within the Community, with particular reference to monetary and exchange rate policies, the balance of payments, and management of foreign exchange reserves;
To make recommendations for a “program of action” for the achievement of convertibility within the region as an initial step toward the longer-term goal of monetary integration.
Factual data for the study and the views of the member countries of the Community on the many complex issues were obtained from responses to a questionnaire prepared by the Fund staff and sent to all member countries of the Community in June 1980. The questionnaire sought specific information on the institutional framework in each member country, particularly on the exchange and trade arrangements and the financial system, on intraregional trade and procedures for settlements within the region, and on the main policy aspects involved in any move toward currency convertibility within the region. Responses to the questionnaire were received from all but one of the member countries.3
In order to amplify the responses to the questionnaire, and more particularly to assess at first hand the problems relating to the achievement of convertibility within the Community, a Fund staff mission4 visited seven member countries5 during the period July 17-August 8, 1980. The seven countries were selected according to criteria that sought to provide comparisons on the basis of geographical spread, economic size, relative degree of development, and trading relationships with the former metropolitan countries. In each of the countries visited, the Fund mission held discussions with the Minister of Finance and the Governor of the Central Bank or with senior officials (in some cases those from Ministries of Trade or Commerce) and with representatives of commercial banks or trading companies and Chambers of Commerce. In addition to these discussions in individual countries, the mission met with officials of the African Center for Monetary Studies in Dakar, Senegal; the West African Clearing House in Freetown, Sierra Leone; and the ECOWAS Secretariat in Lagos, Nigeria. Throughout the discussions, the mission emphasized that it was seeking views on matters of a technical nature and that these views would not be presented in the report as those held by the authorities of particular member countries.
This paper is a revised version of the Fund staff team’s preliminary report that was sent to the Community authorities in November 1980. Chapter II presents a general discussion of the concepts of convertibility, assessing various forms of currency convertibility in the context of short-run and long-run objectives of monetary integration and setting forth the requirements for monetary integration. Chapter III describes the present institutional arrangements of Community member countries, contrasting the approaches taken in individual countries to implement domestic and external economic policies. Chapter IV reviews the pattern of trade of the member countries, and Chapter V describes current Community arrangements for the settlement of financial transactions, as well as reviewing the role and functions of the West African Clearing House. Chapter VI summarizes the discussions conducted by the mission in the seven selected countries, focusing on the problems of convertibility for intra-Community trade, forms of monetary cooperation that would be appropriate for the Community, and the preconditions that would need to be met before the first phase of monetary integration could take place. Finally, Chapter VII sets forth the conclusions of the study and the recommendations for a program of action to achieve currency convertibility.
Benin, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, and Upper Volta. All members of the Community are members of the International Monetary Fund.
Six countries (Benin, Ivory Coast, Niger, Senegal, Togo, and Upper Volta) are also members of the West African Monetary Union and share a common currency—the CF A franc.
A response on behalf of the six members of the West African Monetary Union was provided by the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO).
The Fund staff team, consisting of the authors of this paper, was accompanied by Mr. R. D. Asante of the ECOWAS Secretariat and Mr. O. Diallo of the ECOWAS Fund.
Ghana, Guinea, Guinea-Bissau, Ivory Coast, Nigeria, Senegal, and Sierra Leone.