West Africa ignores IMF red flag

Nigeria is sub-Sahara Africa's second largest economy

West Africa is determined to press ahead with the launch of its single currency despite a warning that it could do more harm than good.

"I don't think anybody can convince us that a single African currency is not a good idea," the West African Monetary Institute's David Asante told BBC News Online.

Members of West African franc

Mali

Burkina Faso

Ivory Coast

Guinea-Bissau

Senegal

Niger

Benin

Togo

"The single currency [the West African pound] used in colonial times was beneficial, we want to recapture those benefits," he said, saying it would enhance the region's overall production.

Last week, a report written by staff at the International Monetary Fund (IMF) warned that monetary union would leave most participating countries worse-off than if they had retained their own currencies, because their economies are not properly aligned.

Problematic Nigeria?

Eight French-speaking countries in West Africa already use a common money, the CFA Franc, as members of the Communaute Financiere Africaine.

Potential members of single currency

Ghana

Nigeria

Sierra Leone

Gambia

Guinea

These countries are proposing to form a single monetary union with several English speaking countries in West Africa, including Ghana, Sierra Leone and Nigeria.

The report raised a red flag over the inclusion of Nigeria, which has a troubled history of economic management and is likely to dominate such a union.

The corruption in Nigeria, together with the country's tendency to engage in uncontrolled government spending, would make it an unsuitable partner, the IMF researchers said.

Nigeria's dependence on oil - an unstable source of revenues due to volatile prices - was also highlighted as a cause for concern.

A matter of opinion

"Nigeria will dominate the region's economies with or without a single currency," Mr Asante said.

"We take note of the report and move on," he said.

The West African Monetary Institute is still having regular consultations with the IMF over the single currency.

A spokeswoman from the IMF stressed the report expressed the view of the authors, but did not necessarily constitute the view of the Fund.

The next meeting with the IMF about monetary union will take place in Washington in March, with July 2005 set as the target date for monetary union.

In the meantime, Mr Asante said member countries were pressing ahead with goals for economic convergence and sensitising the people to the changes.

Consolidation trend

Several areas of the world have been considering the formation of a single currency following the successful launch of the euro across 12 European countries.

Supporters say a single currency can boost intra-regional trade by minimising transaction costs, and is likely to be more stable than individual currencies.

But it would also leave the countries' economies ruled by one central bank, making them vulnerable should emergency action - such as devaluation - be required.

Most of West Africa's economies are highly volatile, and can be pushed up and down by price movements in the commodity markets.