Eco 2027: ECOWAS towards a Single Currency amid Convergence and Regional Fragmentation

At the conclusion of the 69th Ordinary Session of the Authority of Heads of State and Government of the Economic Community of West African States (ECOWAS), held on 19 July in Lungi, Sierra Leone, the organisation reaffirmed its objective of introducing a regional single currency, known as the Eco, from 2027, identifying the progressive participation of countries meeting the convergence criteria as the mechanism through which to make this deadline more realistically achievable. Although it does not yet constitute the founding agreement of the monetary union, the decision set out in the Final Communiqué substantially reshapes the path outlined so far, as it allows the Eco to be launched even in the absence of simultaneous convergence among all 12 members. The central issue therefore shifts from whether all members can meet the required parameters at the same time to the composition of the initial group of participating countries, which will determine both the initial credibility of the new currency and its ability to achieve a sufficiently representative economic scale.

The different starting positions of the member states make the decision to proceed through progressive participation particularly significant. Benin, Côte d’Ivoire, Guinea-Bissau, Senegal and Togo already belong to the West African Monetary Union (WAMU) and use the West African CFA franc (XOF), sharing a common central bank and monetary policy, as well as a fixed exchange-rate (peg) to the euro at 655.957 francs per euro, backed by the French guarantee of unlimited convertibility, while the other seven states retain national currencies and monetary authorities, although under different exchange-rate regimes. Within this framework, the Banque Centrale des États de l’Afrique de l’Ouest (BCEAO), the common central bank of WAMU member states, responsible for issuing the XOF and conducting the Union’s monetary policy, remains at the core of the existing monetary architecture. Although the reform launched in 2019 removed the requirement for the BCEAO to hold part of its reserves with the French Treasury and ended Paris’s ordinary participation in decision-making bodies, the peg itself remained unchanged. Moreover, given that WAMU recorded 6.6% real growth in 2025 and that, in February 2026, reserves covered 7.8 months of imports, joining the Eco would have very different implications for the two groups of countries: members currently using the XOF would replace an already functioning monetary architecture and a well-established exchange-rate anchor with a new regional institution, whereas the others would, for the first time, transfer a substantial share of the powers currently exercised by their respective national monetary authorities to the future common central bank.

It is against this backdrop of monetary and macroeconomic heterogeneity that the ECOWAS Macroeconomic Convergence and Stability Pact becomes particularly relevant, as compliance with its requirements will determine the selection of the first participants. The framework requires each country to maintain a fiscal deficit of no more than 3% of GDP, average annual inflation of no more than 5%, monetary financing of the deficit not exceeding** 10% of the previous year’s tax revenues**, and reserves sufficient to cover at least three months of imports. The improvement in regional macroeconomic conditions, with inflation declining from 23.3% in 2024 to 16.8% in 2025 and the consolidated deficit narrowing from 4.8% to 3.1% of GDP, has not yet translated into sufficiently broad convergence, as estimates for 2025 indicated that only four of the 12 members would have been able to meet all four criteria simultaneously. Divergences also remain evident across some of the region’s main economies: Liberia met only two primary criteria, with average inflation at 8.5%, while Ghana recorded rapid disinflation, with year-on-year inflation falling to 4.6% in July 2026, although this result does not automatically imply compliance with the other parameters. Nigeria remains further from the required threshold, with inflation standing at 15.43%, still well above the prescribed limit.

This distribution directly affects the size and credibility of the initial Eco area, as the composition of the first group will shape both the stability of the new currency and its actual economic relevance. Proceeding without economies that remain far from the required parameters would mitigate the risk of transferring fiscal or inflationary imbalances into the new union, but the potential initial exclusion of Nigeria would significantly reduce its economic weight and regional importance. Conversely, bringing larger economies into the project at an earlier stage in order to expand its scale could weaken the credibility of the new central bank precisely when, for some members, it would be replacing the euro anchor. Progressive participation therefore allows the trade-off between stability and scale to be managed over time, provided that the initial group serves as a transitional stage towards a broader monetary area rather than becoming permanently confined to a limited membership.

The sustainability of this process will also depend on the ability of common institutions to manage shocks that affect member states asymmetrically. In this regard, a capital requirement of 187 million dollars for the future Central Bank of West Africa and a 4.5-billion-dollar reserve-pooling mechanism have already been approved, while in February 2026 the monetary union agreement and the central bank statute were reportedly ready for adoption. These instruments are particularly significant because the Eco is expected to operate under a flexible exchange-rate regime and an inflation-targeting framework: WAMU members would therefore give up the stability provided by the euro peg in exchange for greater capacity for the common currency to absorb external shocks, while Nigeria, Ghana and the other countries with national currencies would transfer to the regional central bank powers currently exercised by their respective monetary authorities. Since the area includes economies with very different production structures and levels of exposure to commodities, a common monetary policy will therefore need to be accompanied by credible fiscal discipline and robust regional stabilisation mechanisms, which will be essential to contain the effects of shocks that could generate divergent consequences across member states.

Against this backdrop, the short- to medium-term implications for businesses and investors are likely to be mixed. Within the initial group, a common currency would eliminate exchange-rate risk among participating countries, reduce conversion costs and could facilitate payments, trade and cross-border investment, a significant benefit in a region where intra-ECOWAS trade still accounts for less than 15% of total trade. For countries currently using the XOF, however, the transition from a fixed exchange rate with the euro to a flexible regional currency could increase exposure to exchange-rate volatility and hedging costs, particularly during the initial phase, making the credibility of the new central bank a key factor also for the cost of capital and investment decisions. Moreover, the Eco would remove only one of the frictions constraining the regional market, as non-tariff barriers, infrastructure deficits and fragmented payment systems would continue to limit trade in the absence of parallel reforms.

The decision also takes on a broader political dimension following the withdrawal of Burkina Faso, Mali and Niger from ECOWAS, which became effective on 29 January 2025. The three countries remain members of WAMU and continue to use the XOF alongside the five ECOWAS states belonging to the same monetary union. Should the latter join the Eco while the members of the Alliance of Sahel States (AES) retain the CFA franc, the current WAMU architecture would have to be redefined, creating the possibility that the political separation between ECOWAS and the AES could also translate into a gradual monetary separation. The Eco could therefore strengthen the economic and institutional cohesion of the group remaining within the Community, while at the same time deepening the fragmentation of West Africa by adding a new divide between regional monetary systems to the existing political fracture.

If current divergences persist, 2027 therefore appears more likely to mark the launch of an initial, limited monetary area than the simultaneous replacement of the currencies of all 12 members. The success of the decision will depend on ECOWAS’s ability to turn this initial phase into a credible process of enlargement, as an excessively narrow group would limit economies of scale and the regional weight of the currency, while an accelerated expansion to economies that have not yet fully converged would increase the risk of importing significant fiscal and inflationary imbalances into the new area. The decision therefore makes the introduction of the Eco more concrete at the political and institutional level, but ties the sustainability of the project to the credibility of the new central bank, the quality of macroeconomic convergence and ECOWAS’s ability to progressively integrate its main economies without compromising the stability of the future monetary union.