The recent announcement by the Ivorian president and the current chairman of ECOWAS, Alassane Dramsn OUATTARA about the adoption of Eco by the French west African countries to replace FCFA (XOF) as their currency in 2020 has led many to question why the new currency must be pegged to euro making these countries have some link with France which is what many want to avoid?

In trying to clarify this, Mr.Tianguam Rosetang, a research team member of MUNED highlight the following analysis.

“A currency in a financial market must be pegged to another currency. For instance, we may hear of USA dollar pegged to Swiss Franc and written in the world financial market as CHF/USD. We also hear of Great Britain Pounds pegged to European union euro as EURO/GBP. In the other sense, this is what we regularly referred to as the FIXED CURRENCY EXCHANGE RATE.

As noted above, the importance of pegging a currency is that it gives birth to a FIXED EXCHANGE RATE that does not fluctuate in the financial market based on market conditions. If not pegged, this will give birth to FLOATING EXCHANGE RATE which fluctuates based on market conditions.

The issue here is: does the ECOWAS have the greatest trading exchange with Europe more than USA, China, Japan and many other countries to peg their currency to euro as a based currency? Definitely, I believe the answer is yes. Any intelligent country or economic bloc will definitely Pegg it currency to the currency of the country or economic bloc which they have the greatest economic trading exchange to bypass currency floating which will significantly affect their currency and economy. Thus, pegging Eco to EURO is a good idea but the question here to be answered is: how many Eco = 1euro? We currently know that in the case of West African CFA (XOF), 1 euro is approximately 650 Fcfa and in the case of adopting Eco currency, that parity is not maintained but change to say 1 euro =900Eco written in financial term as 1Euro/900Eco, that will symbolically mean devaluation of West African Fcfa and that is where financial experts are focusing their attention, that this may be a tactic to systematically devalue West African Fcfa (XOF) which will automatically affect the economies of these countries and reflect directly on the living standard of the people.