Race to complete convertibility by year-end
Nana Mensah
'01-DEC-06 07:00'


By that time Ghana, The Gambia, Sierra Leone, Guinea and Nigeria will
operate a bilateral clearing system for quoting and trading in local
currencies, in line with their economic dream of creating a single
monetary zone.
Though the birth of the single economic bloc has stalled several times,
the dream lingers on in Accra, where lead bankers hope to complete this
within three months. With a market size of about 200 million,
English-speaking West Africa is the last to let go of their monetary
sovereignty. The Francophones adopted the CFA more than a decade ago.
Businesses have welcomed the plan as a model for achieving a single
monetary union three years later in 2009. “We believe it is a step towards
the ultimate goal of having a single currency for the entire continent of
Africa by 2020, as set by the AU,” top government officials added. The
main advantages are economies on international foreign currencies and
freer cross-border trading activities.

Last month representatives from central banks, forex bureaux and
commercial banks approved a local currency convertibility formula in Accra
under the auspices of the West Africa Monetary Institute (WAMI). Speaking
to BIA West Africa, the Institute’s Director-General, Dr. Oko Joseph
Nnanna said “all risk factors in establishing full convertibility have
been addressed. When criticised for delays, Dr. Nnanna asserts, “We can
achieve this feat in 90 days.” Industry analysts are concerned that the
region could be exposed to capital account risks posed to financial
intermediaries. They also fear a foreign exchange regime could be
interrupted, as well as capital flight and sovereign risk.

According to WAMI, moving towards full convertibility from a system of
tightly rationed foreign exchange will promote competitive markets in the
region. Already trading in local currencies in the region is serious
business in the markets. Moreover, member countries enjoy free circulation
of currency across the country’s borders, plus the presence of robust
cross-border trading activities in goods and services.

Dr. Nnanna observed that the five nations are experiencing favourable
economic conditions. “The existence of a stable and sustainable exchange
rate regime is right for this course.” Based on other experiences in the
East African region, as well as the French UEMOA (for more than 12-member)
countries adding to the Economic Community of West African States
(ECOWAS), English West Africa will no longer require foreign currencies as
a mandatory mode of payment.


A cedi account in Lagos

Quoting and trading in WAMZ local currencies implies that these currencies
are used to settle cross-border transactions through the formal banking
system and forex bureaux. “Commercial banks will conduct operations such
as opening accounts and accepting deposits, selling and buying of notes
and coins, and executing transfers for cross-border transactions,” says
WAMI, the body set up to coordinate the transition from sovereign
economies into a single monetary zone. Forex bureaux are mandated under
the new system to do spot buying and selling of the local currencies just
as they would have done for foreign currencies. However, their excess is
required to be banked with the banks. According to WAMI’s prescriptions,
excess funds would be settled through appropriate channels, set up by
central banks in the Zone.

Why the bilateral system of settlement?

By adopting this system, commercial banks are expected to repatriate all
surpluses in national currencies to correspondent banks for credit to
their accounts. Where no correspondent banks exist, central banks will
maintain correspondent accounts with each other for settlement of
intra-regional transactions and act as buyers of last resort of their
currencies at the prevailing market rates from authorised dealers.
Exchange rates will still be market-determined in the Zone. Another option
is the multilateral system, where a reduced amount of foreign currency is
used to settle balances, as only the net position determined through a
clearing house is paid. Between 1950 and 1958 the European Payments Union
used the West African Clearing House for settlement of the net balance
post period through correspondent national banks. However, given that by
2009, a single currency, the Eco, is to be introduced, bankers said, the
multilateral system is not envisaged for the Zone.

What are the right conditions?

Quoting and trading in local currencies across the region means having a
market- determined exchange rate for all currencies of the Zone, as well
as free movement of goods and people. This also implies the unimpeded flow
across borders of services and currencies.
Central banks would have to more regularly communicate the exchange rates
of their currencies to each other.
Daily quotation of the currencies of the Zone by banks and forex bureaux.
Amendment of foreign exchange regulations to allow the free movement of
WAMZ currency notes within the Zone.
Commitment to maintaining the exchange rate of member currencies within
the WAMZ Exchange Rate Mechanism (ERM) and adequate reserves to give
credibility to the convertibility agreement.
National banks to implement the IMF VIII, which they have all signed, to
facilitate the convertibility of national currencies in the WAMZ,
justified under current account transaction and also for conversion
purposes.
A meeting of the Convergence Council of the WAMZ would consider the new
proposal in Accra in November. The move to unify the economies of the five
nations took a fast-track approach by the heads of state of the member
countries in 2002. However, the member nations failed to meet convergence
criteria for creating a monetary Union and adopting a single currency, the
Eco, in 2005. Rumour had it that Nigeria, the economic might of the Zone,
was pessimistic about the outcome because of pricing turbulence in the
market at the time. The postponement met with apathy among the population,
as they perceived the Eco as a joke. To some extent, this thinking still
lingers. But the WAMI says, “any two member countries ready in December
2009 can take off.” According to Dr. Oko Joseph Nnanna, using local
currencies would show that member states are committed to the WAMZ
programme. The region is geared for an increased level of intra-regional
trade, now less than a third of gross national imports.-Business in Africa
Magazine (West Africa)


--------------------------------------------------------------------------------
Is the region ready?
In the 1980s and 1990s the countries who now make up the West African
Monetary Zone implemented a Structural Adjustment Programme (SAP) which
included economic liberalisation measures. This resulted in the attainment
of an increasing degree of convertibility, which culminated in the Gambian
dalasi becoming convertible internationally. Significant steps have been
taken by the other member states to reduce the degree of inconvertibility
of their currencies. In The Gambia, both current and capital transactions
are open and unrestricted. The country has acceded to the current account
convertibility obligations of Article VIII of the IMF Articles of
Agreement. The Gambia has also allowed its exchange rate to be determined
by market forces. Authorised dealers in foreign exchange include the
commercial banks and the foreign exchange bureaux. The export and import
of the dalasi, the national currency, is unrestricted.
In Ghana, current account transactions have been liberalised while there
is a partial liberalisation of the capital account. The country has
acceded to the current account convertibility obligations of Article VIII
of the IMF Articles of Agreement. Authorised dealers in foreign exchange
include the banks and foreign exchange bureaux. The exchange rate of the
cedi is market-determined under a floating exchange rate system. Regarding
the export and import of domestic currency, only a maximum of cedi 5 000
is permissible to residents travelling abroad, which imposes a ban on the
import or export of the national currency. There is no restriction on the
importation of foreign currency into the country.

Guinea has acceded to the current account convertibility obligations of
Article VIII of the IMF, thereby liberalising its current account
transactions. Authorised dealers in foreign exchange include the
commercial banks and the bureaux de change. Foreign exchange
liberalisation measures include: freedom of residents and non-residents to
open and operate foreign currency accounts; freedom to bring foreign
currency into the country without restrictions; freedom to obtain foreign
exchange from authorised dealers without reference to the Central Bank.
There are, however, restrictions on capital transactions, and the export
and import of the Guinean franc is limited to GNF 5 000. The country is
operating a floating exchange rate system in which the exchange rate of
the national currency is determined by market forces with the US dollar as
the intervention currency.

In Nigeria, the authorities have expressed the desire to move from the
prevailing situation of partial convertibility by the end of December
2006. However, it should be stressed that, currently, exchange control
restrictions on payments for current account transactions have been
eliminated. The liberalisation of foreign exchange transactions has also
made it possible for residents and non-residents to open and operate
domiciliary accounts in convertible foreign currencies. The institutional
players in the exchange market include the Central Bank, the commercial
banks and the bureaux de change. The naira exchange rate is market-driven
under the Wholesale Dutch Auction System. The export and import of the
currency remains prohibited. Resident travellers are allowed to carry only
a maximum of N 5 000.

In Sierra Leone, current account transactions have been fully liberalised,
while a partial liberalisation of capital transactions has also been
effected. Commercial banks can process and approve requests for foreign
currency transfers and remittances abroad arising from current
international transactions without reference to the Central Bank.
Residents may operate a forex account at a commercial bank in Sierra
Leone. The exchange rate is market-determined under a floating rate regime
in which the major players are the Central Bank, the commercial banks and
bureaux de change. There is a restriction on the import and export of
domestic currency above a maximum of le 50 000.

Economists predict that a real GDP growth rate of 7 percent is achievable.
What Africa needs is sustainable growth. For example the total GDP of 24
African countries that signed up to the African Peer Review Mechanism,
APRM, is estimated at $400bn. Moreover, in these countries, consumer
expenditure totalled about $250bn yearly. At a GDP real growth rate of 5
percent, total GDP of the 24 countries could hit $560bn annually in the
next 7 years.

Time and tide wait for no man, globalisation is indeed a raging fire. West
Africa cannot stand still while others race ahead.

¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤
To unsubscribe/subscribe or view archives of postings, go to the Gambia-L Web interface
at: http://listserv.icors.org/archives/gambia-l.html

To Search in the Gambia-L archives, go to: http://listserv.icors.org/SCRIPTS/WA-ICORS.EXE?S1=gambia-l
To contact the List Management, please send an e-mail to:
[log in to unmask]
¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤