SEMINAR ON POLICY RESPONSES TO EMERGING EXTREME EVENTS AND LESSONS FROM THE EUROPEAN MONETARY INTEGRATION PROCESS

Organized by the West African Monetary Agency

[Friday, 28 May 2021 10:00 – 14:30 GMT (11:00 – 15:30 Abuja Time)]

INTRODUCTION

The establishment of a monetary union requires first a determination of the structural economic mechanisms for which either convergence/coordination between national mechanisms or the creation of a new federal institution are needed. These mechanisms cover fiscal and financial policies, including financial stability, payments and increasingly climate change policies. In a second step, cross institutional cooperation between the central banks of the prospective member states is needed to harmonize the conduct of monetary and financial policies. This includes collaboration to promote understanding of the multiple challenges faced by policy makers addressing shifts in the global economy that impact on their economies. This is especially relevant in exceptional times which may require unconventional policy responses.

The ongoing COVID-19 pandemic is one such case in point. It is evolving in uncertain ways and continues to adversely impact the global economy. Even though vaccinations have started in the Member States of the ECOWAS, ongoing mutations of the virus and increasing cases in many regions of the world continue to pose risks to the economic outlook in the ECOWAS. Partly as a result of the economic impact of the pandemic, the launch of monetary union in 2020 was postponed and the Authority of Heads of State and Government has waived performance requirements against the macroeconomic convergence criteria for the years 2020 and 2021. Central banks in the ECOWAS moved quickly to implement a broad array of policy measures to mitigate the crisis. Many of these measures were short term in nature as the crisis was expected to be of short duration. However, policy makers, including those in the ECOWAS, are having to rethink their approach to the crisis and their preparations for future contingencies as the pandemic drags on.  

Climate-related risks are perceived to be much longer term but have been recognized as possibly having significant economic, political and security implications. The ECOWAS region could be a climate change hotspot given changing weather patterns in the Sahel region may adversely impact crop yields and pose flood risks to coastal cities. Some central banks around the world have started considering the effects of climate change on their economies and the possible impacts on the conduct of monetary and financial policies. Even though predicting the direction and magnitude of climate related risks is difficult, early consideration of the issue by ECOWAS central banks will serve to prepare for contingencies.