Arguments against Optimum Currency Area-West Africa
Introduction
Optimum currency area is a combination of several countries or regions to use a common currency. For a single currency to be successful, the states must meet certain critical conditions. First, the countries need to own a vast and labor market that is integrated. The labor market should comprise of flexible prices and wages. Also, the region should experience similar booms and recession. The same business cycles minimize shocks occurring in one area, which could distort the markets. Finally, the counties should have mobile capital that sustains trade balance.
The chairman of ECOWAS recently stipulated the conditions that the members had to meet to ensure the effective and efficient implementation of a common currency, which included. In essence, the budget deficit should be less than 3%, prevailing inflation should be less than 5%, and the country’s public debt is less than 70%. The central bank was also required to have finance in reserves deficit of less than 10%, and generally, the country should experience table exchange rate. However, the region seems not to be doing well in fulfilling the conditions. This paper seeks to review the reason behind this failure to use a single currency. Don't use plagiarised sources.Get your custom essay just from $11/page
Arguments against the optimum currency in West Africa
Insecurity
The region is comprised of rebels who have often interfered with the flow of trade. Several cases have been reported of killings and kidnappings in the significant towns. The government is facing a tough time providing security against militia such as Boko haram in Nigeria. Significant conflicts have arisen from pastoral conflicts between West Africa and Sahel. Political instability has been noted in most member countries due to rampant rigging, leading to civil wars. This physical insecurity has threatened peace and harmony in trade hence lowering the investment and price stability in the region.
Inadequate infrastructure
The transport system and communication systems are vital for trade to be carried out efficiently. The weak transport system in west Africa countries have inhibited trade as commodities take a longer time to reach the market places, it has caused a lot of losses as perishable goods spoils before entering the market. Lack of sea links between the countries has led to the high cost of transporting imports and export goods among the nations. Railway transport is not available between the member countries which make transportation of bulky goods a challenge .finally road transport faces major challenge concerning major custom checkpoints by police .bribery.
France influence
Eight members of ECOWAS are francophone countries that adopted the West Africa CFA franc common currency .the currency has excellent advantages such as lower interest rates and stable exchange rates, which has hampered the attitude of these countries joining hands with the rest of the members informing and optimum currency in West Africa.
Power and water
The major countries are facing water challenges .most factories have been forced to dig boreholes to provide adequate water for cooling machines and other activities. Also, the power sources seemed to be insufficient to support development and growth .the inadequate power and water sources have led to slow economic growth and price instability
Corruption
Corrupt leaders in the countries have hindered the growth of trade among the ECOWAS countries, as the government of each country tries to improve infrastructure most developing funds are misused by the leaders who have put their priorities first. This has led to poor infrastructure, which intern affects trade negatively.
Conclusion
In summary, implementation of optimum currency in West Africa might not be possible with the existence of corruption, insecurity, poor infrastructure and inadequate power and water since they are drivers of the economy however if successful ECO will be a foundation of continental and regional growth