(Ecofin Agency) - Like the Ghanaian Cedi, the Nigerian Naira showcased its vulnerability to external shocks. This resets the UEMOA's CFA Franc as a stability factor in the ECOWAS' common currency project, the ECO.

For years, Nigeria has kept its currency on par with the US dollar, through artificial means, such as opening its domestic securities market to foreign investors and enforcing a fixed exchange rate for official transactions. However, the recent decision by the current Nigerian administration to unify conversion rates with the US dollar resulted in an official devaluation of the Nigerian currency, making it weaker than the CFA Franc.

According to the Central Bank of Nigeria's website, it now takes 746.7 Naira to buy $1. Previously, the official exchange rate was 427 Naira per dollar. Meanwhile, it only takes 596.7 CFA Francs to buy $1. Even at its lowest level, which was reached in late September 2022, the UEMOA currency never crossed the 700 units per dollar threshold.

Meanwhile, ECOWAS countries are still working on adopting a single currency, the ECO, and UEMOA countries have decided to rename their currencies as part of this sub-regional project. This decision was met with controversy and was not favored by former Nigerian President Muhammadu Buhari.

However, the current development demonstrates that the Nigerian Naira may not have had the capacity to support the common currency project, contrary to what some commentators had suggested.

For economic actors in neighboring countries using the CFA Franc, the depreciation of the Nigerian currency presents new investment opportunities in Nigeria at reduced costs. However, with an inflation in Nigeria that surged to nearly 22%, the situation needs to be assessed with care.

Despite the criticisms it faces, the CFA Franc has proven to be the most resilient West African currency among the major economies in ECOWAS when faced with external shocks. In Ghana, another strong economy in the sub-region, the currency has gradually depreciated over the past decade, going from an exchange rate of 2 cedis per dollar in 2013 to a rate of 11.6 cedis per dollar currently.