Abstract:
The formation of a Monetary Union by the West African Monetary Zone has been in
pursuance for more than a decade. The WAMZ is made up of six countries in West
Africa; The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone. One significant
benefit from using a common currency is the lower costs of transactions; however
member countries will lose the ability to use monetary policy to respond to different
shocks. The participating countries need to converge or ultimately attain an Optimum
Currency Area to mitigate the asymmetric shocks. The WAMZ has a set of
Macroeconomics Convergence Criteria to be attained by its member countries before the
commencement of the Monetary Union. The study assesses the performance of all the
WAMZ countries based on the MCC from 2001 to 2011. The study also uses various
theoretical criteria to assess the Optimum Currency Area in the WAMZ. The study
further employs the exchange rate variability based on the OCA index to analyze the
possibility of currency integration among three of the WAMZ’s countries consisting of
The Gambia, Ghana and Nigeria using time series data from 1980 to 2011.
The
assessment based on the MCC indicates that WAMZ is not ready to form the Monetary
Union as of 2011. However, there are some convergences in the primary MCC. The
results from the study also indicate that the WAMZ is not an Optimum Currency Area.
The OCA index results show that the Nigerian Naira was the most stable currency in the
region during the period of analysis. Furthermore, the method confirms that the WAMZ
single currency (if it will be established) should start with Nigeria and Ghana, followed
by The Gambia.
