By Kenneth Atsu DOGBEY& Martin WAANA-ANG
The Eco currency, a planned monetary unit for the Economic Community of West African States (ECOWAS), aims to foster regional economic integration and stability. This paper proposes transitioning the Eco into a cryptocurrency, leveraging blockchain technology to address the limitations of traditional currencies and enhance the benefits of a unified monetary system.
By adopting a digital currency framework, the Eco can improve financial inclusion, reduce transaction costs, and enhance security and transparency. The paper outlines a strategic approach to this transition, including a feasibility study, infrastructure development, regulatory framework, pilot program, and full deployment. Additionally, it addresses potential challenges such as technological barriers, regulatory issues, and public adoption, proposing mitigation strategies to ensure successful implementation.
The adoption of a cryptocurrency model for the Eco represents a forward-looking step towards modernising West African finance, supporting regional economic growth, and positioning ECOWAS at the forefront of digital currency innovation—an initiative that could contribute significantly to the African Continental Free Trade among West African nations.
The Eco is envisioned as a unifying currency for West African nations, designed to facilitate economic integration and stability. To maximise its potential, this paper proposes transitioning the Eco into a cryptocurrency, harnessing blockchain technology to offer a secure, transparent, and efficient monetary system.
This proposal outlines the potential benefits and strategic approach for transitioning the planned Eco currency into a cryptocurrency. By adopting a digital currency framework, ECOWAS can leverage the advantages of blockchain technology to enhance financial inclusion, economic stability, and regional integration. This transition aims to modernise the Eco, align with global digital currency trends, and address some of the traditional currency’s limitations.
History of the Eco
The Eco is the proposed single currency for the Economic Community of West African States (ECOWAS) intended to enhance regional economic integration among state parties. The concept dates to the early 20th century with earlier monetary integration efforts culminating in the establishment of the West African Currency Board and the West African Monetary Union.
Formal discussions about the Eco began in earnest in the 2000s, with the goal of creating a unified currency to streamline trade and economic cooperation among member states. However, the project has faced numerous delays due to political disagreements, political instability in some member states, economic disparities and logistical challenges. Recent efforts have focused on addressing these issues, with plans for the Eco’s introduction to be revisited and updated. The Eco aims to replace the CFA franc in certain West African countries and to unify the region’s currency system.
Despite the setbacks, including impacts from the COVID-19 pandemic, the Eco remains a significant goal for improving regional economic stability and integration.
The concept of cryptocurrency
Cryptocurrencies are digital assets designed for use as a medium of exchange, similar to traditional currencies like the Ghana Cedi or US dollar. They rely on cryptographic techniques to secure transactions, manage new unit creation, and verify asset transfers, operating independently of central authorities like governments or banks. Instead, cryptocurrencies are decentralised, utilising a network of computers (nodes) to manage transactions. Cryptographic keys enable users to control their digital wallets and conduct transactions. Public keys function as addresses for sending cryptocurrency, while private keys provide access to spend it.
Cryptocurrencies use blockchain—a chain of blocks linked and secured by cryptography— to record transactions transparently and immutably. Each block contains transaction records, and altering past records requires the modification of subsequent blocks, which must be effected by a consensus among all the individuals on the network. Cryptocurrency is often created through mining—a procedure, which involves solving complex algorithms to add new, blocks to the blockchain and verify transactions. Miners receive block rewards and transaction fees for their efforts. Unlike traditional currencies, cryptocurrencies lack intrinsic value and are not regulated by banks.
Their value is derived from trust and perceived value, leading to significant price volatility. Cryptocurrency exchanges are used to facilitate the buying, selling and trading of digital assets. They act as intermediaries, allowing users to trade cryptocurrencies for other digital currencies or fiat money.
The benefits of cryptocurrency are numerous. They include: reduced risk of corruption due to their decentralised nature, lower transaction fees, especially for international transfers, and enhanced financial inclusion for those without access to traditional banking. Built on blockchain technology, cryptocurrencies also offer transparency and security in transactions.
Cryptocurrency in West Africa: At a glance
There has been a notable increase in cryptocurrency adoption across West Africa. Countries like Nigeria, Ghana and Senegal are particularly active in the cryptocurrency space. Nigeria, for example, is one of the largest markets for cryptocurrency in Africa, with a significant number of users and a vibrant community of traders and investors. Cryptocurrencies are being used as a tool for financial inclusion, providing access to financial services for individuals who are unbanked or underbanked.
Various blockchain-based projects and startups have emerged in the region, focusing on areas such as remittances, supply chain management, and digital identity verification. These projects aim to address local challenges and improve economic efficiency. Regulatory approaches to cryptocurrencies vary widely across West African countries. Some governments are actively working on regulatory frameworks to manage and integrate cryptocurrencies, while others are more cautious or have imposed restrictions. In countries like Nigeria, the Central Bank has had a complex stance on cryptocurrencies, initially banning banks from dealing in them, but later softening its stance to allow the development of a central bank digital currency (CBDC), the eNaira.
In 2023, the Central Bank, together with the Securities and Exchange Commission (SEC), issued guidelines for the adoption and licensing of cryptocurrency in Nigeria. In March 2024, the SEC issued amended guidelines to tighten up the regulatory framework to balance innovation with responsible adoption. Several West African countries are exploring or developing their own CBDCs. Nigeria has launched the eNaira, and other countries in the region are considering similar initiatives as a way to integrate digital currencies into their economies while retaining regulatory control.
Indeed, the Bank of Ghana, in the fourth quarter of 2023, announced the introduction of the eCedi. In furtherance of that, the Bank organised the eCedi hackathon to provide opportunity FinTechs, developers and innovators to design innovative solutions that explore various use cases of a Central Bank Digital Currency (CBDC).
According to the Bank, the eCedi can be used for merchant (C2B) transactions, government payments (G2P), agriculture, trade, and inbound remittances. The Bank also indicated its preparedness to ensure data privacy through the use of the eCedi, to prevent illicit use through anti-money laundering measures. The Bank also indicated its intention to make the eCedi interoperable with other payment systems. Since 2023, however, the eCedi is still in its pilot stage with no significant progress as of now.
An eco-friendly option
The environmental impact of cryptocurrencies varies based on their technology. Proof of Work (PoW) cryptocurrencies, such as Bitcoin, are known for high energy consumption due to their intensive mining processes, which require substantial computational power and electricity.
The environmental impact is greater if the electricity comes from fossil fuels, while renewable energy sources can reduce this footprint. Conversely, cryptocurrencies using Proof of Stake (PoS) or similar low-energy consensus mechanisms, like Ethereum’s PoS with its Ethereum 2.0 upgrade, are more energy-efficient. Newer cryptocurrencies often prioritise eco-friendliness by adopting these low-energy mechanisms and incorporating sustainable practices. Despite the significant environmental concerns associated with PoW cryptocurrencies, efforts are underway to use renewable energy and develop energy-efficient mining technologies.
The overall impact of cryptocurrencies on global energy consumption is relatively small compared to major industries, but as adoption grows, their collective impact could increase. There is growing regulatory and investor pressure to improve environmental practices, prompting the industry to adopt more sustainable approaches.
Eco Cryptocurrency: Any realistic benefits?
Cryptocurrencies offer a means to facilitate cross-border transactions with lower fees and faster processing times compared to traditional banking systems. The burgeoning cryptocurrency market presents investment opportunities and the potential for economic growth, particularly as the technology matures and regulatory environments stabilise.
The rise of decentralised finance (DeFi) and fintech innovations in the cryptocurrency space is creating new avenues for financial services, including lending, savings, and insurance, which could be particularly impactful in regions with limited access to traditional financial products. The proposed Eco-cryptocurrency will provide access to financial services for unbanked and underbanked populations across the region. Reduce transaction costs and processing times compared to traditional banking systems is also another innovative benefit of the Eco.
The Eco can also utilise blockchain technology to ensure transparency, reduce fraud, and enhance security. Another benefit of the Eco is to leverage digital currency’s stability and traceability to mitigate economic instability.
Further, there is a likely financial inclusion as Cryptocurrencies can be accessed via mobile phones and digital wallets, offering financial services to individuals without traditional banking infrastructure. It eliminates the need for intermediaries, lowering transaction fees and improving the efficiency of cross-border payments. Blockchain technology provides immutable records of transactions, reducing fraud and increasing trust among users advancing security and transparency. Importantly, it will boost economic integration. Finally, digital Eco can be integrated with other digital financial systems, enhancing regional economic cooperation and market efficiency.
Milestones
Notwithstanding the potential benefits of the Eco, its successful rollout requires various interventions and innovative policies by ECOWAS.
First, ECOWAS would have to conduct a comprehensive feasibility study to assess the technological, economic, and regulatory implications of transitioning to a cryptocurrency; develop the necessary blockchain infrastructure, including a secure platform for transactions, wallets, and a network of validators; establish a robust regulatory framework to govern the use of the Eco cryptocurrency to address issues such as anti-money laundering (AML) and to combat the financing of terrorism (CFT); launch a pilot program in select member states to test the cryptocurrency in real-world scenarios and gather feedback for further refinement; gradually roll out the Eco cryptocurrency across all ECOWAS member states, ensuring adequate support and education for users; implement mechanisms for ongoing monitoring and assessment of the cryptocurrency’s performance and make the necessary adjustments to enhance functionality and address emerging challenges.
Again, it is suggested that Ecowas would have to invest in technology infrastructure and training to support the adoption of digital wallets and blockchain systems.
It is further recommended that ECOWAS should develop a comprehensive legal framework in collaboration with regional and international experts to address regulatory concern that may arise with the launch and adoption of the Eco.
The regulatory framework must be comprehensive and member states should be mandated to domesticate same into their domestic laws. The relevant authorities of member states to regulate all digital platforms directly connected with the implementation of the Eco would then use this framework.
ECOWAS should also launch educational campaigns to raise awareness about the benefits and usage of the Eco cryptocurrency.
Conclusion
Transitioning the Eco into a cryptocurrency represents a transformative opportunity for ECOWAS. By leveraging blockchain technology, the Eco can become a modern, efficient and inclusive currency that supports regional integration and economic development.
With careful planning and execution, this initiative can position ECOWAS at the forefront of digital financial innovation. This pitch outlines a strategic vision for integrating the Eco as a cryptocurrency, addressing key benefits, implementation strategies and potential challenges to ensure a successful transition.
