Monetary Independence Looms For West And Central Africa
Earlier this week French President Emmanuel Macron promised to rethink French backing of the CFA franc currency, a Euro-pegged monetary system which is currently used in fourteen African nations. The franc has been in use in Africa since 1945. According to one of Macron’s advisors , quoted by the Financial Times, the President is losing interest in continuing backing the currency because it causes political friction and does not align with his goals for transitioning into a positive post-colonial relationship with Africa.
Controversies Surrounding the CFA Currency
Macron’s decision could just as well have been influenced by the various controversies surrounding the currency. While some have applauded it as stabilizing force in Africa other analysts and politicians have called it a tool of France’s neo-colonialist approach in Africa.
Earlier this year the currency was at the center of a diplomatic spate when Italy’s Deputy Prime Minister Luigi Di Maio accused France of using it to exploit former African colonies. Di Maio said that Macron “first lectures us then continues to finance public debt with the money with which he exploits Africa.”
Where Exactly Uses The CFA?
The CFA Franc is currently in use in 14 African countries comprising two monetary zones. The first is the West African Economic and Monetary Union (WAEMU) which is made up of Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. The other zone is called the Economic and Monetary Community of Central African States (CEMAC) which includes Cameroon, Central Africa, Gabon, Congo, Chad and Equatorial Guinea.
Brief History of the CFA
The CFA currency was introduced in 1945, on the same day that France signed the Bretton Woods Agreement and made its declaration to the international Monetary Fund (IMF). It was known as the “Franc of the French Colonies of Africa” (CFA).
According to the Senegalese economist Ndongo Samba Sylla—who also wrote a book about the history of the currency—the CFA franc was created in a situation where France’s economy was in ruins after the war. There were not enough foreign exchange reserves and inflation was high. The only way out of the situation was to devalue the French franc, which was homogenous throughout the French empire and its colonial possessions.
However in order to devalue the French franc a new currency had to be created. Therefore, following advicee from the ministry of finance in France, the CFA franc was created. “This means it had been created with a devaluation of the French franc,” Sylla explained, noting further that the imposition of the CFA franc was also a means for France to seize total control of its colonies since “all the decisions, economic, financial, and political were taken from France.”
Why Is The Debate Over The CFA Coming Up Now?
The question arises: why is the CFA franc being opposed as a relic of colonialism so long after the French left Africa? The main reasons is that France still maintains a tight grip over the currency and has direct power to devalue it. For example, as a condition of usage of the CFA franc, a French official with veto powers must be permitted to sit on the board of regional central banks of Africa. Apart from that, France requires all countries using the CFA franc to deposit 50 percent of their foreign reserves in France’s central bank in Paris as a guarantee to the value of the currency.
As per this year, the total amount being held in France from West African countries using the CFA franc was $4.7 billion. This did not include deposits made by Central African countries. The requirement that African nations using the CFA franc deposit half of their foreign reserves has been a particularly large source of resentment throughout West and Central African nations.
Sylla argues that the CFA franc allows France to continue exercising “monetary imperialism,” pointing out that although the guarantee of 50 percent is meant to stabilize the CFA franc, it has also limits growth since the value of the currency is tied to the Euro instead of being determined by international markets.
“The CFA franc is the last colonial currency in activity,” he told the New York Times.
In a paper published by the London School of Economics and Political Science, Sylla observed that “The CFA franc is a good currency for those who benefit from it: the major French and overseas corporations, the executives of the zone’s central banks, the elites wishing to repatriate wealth acquired legally or otherwise.”
Similar views have been expressed by Carlo Lopes, high representative of the Commission of the African Union, who said the currency’s stability was benefiting French exporters and investors, not the nations using it.
“The optics are so bad I don’t think it is sustainable for France to continue this arrangement. There’s such a strong demand from African youth to take back their monetary independence, ” he said. “The political costs may be outweighing the economic gains.”
Criticism has also come from African leaders who see the currency as an impediment to the sovereignty of their countries. Two years ago during independence celebrations, the President of Chad Idriss Deby called for the restructuring of the CFA franc.
“We must have the courage to say there is a cord preventing development in Africa that must be severed,” Deby declared. The “cord” he was referring to was the CFA franc.
Also holding similar sentiments was Benin’s President Patrice Talon who reiterated his call for the return of foreign reserves kept in France. “Psychologically with regards to the vision of sovereignty and managing your own money, it is not good that this model continues,” he said.
Supporters Of The CFA France Tout Its Benefits
Proponents of the CFA franc have argued that it has helped countries using it to control inflation compared to other countries which use different currencies. Amaa Anku, who is a political risk consultant, opined that being under the CFA franc has helped keep a lid on fiscal indiscipline. “You don’t see crazy fiscal slippages in any of the CFA countries you see in, say Ghana,” Anku said.
The currency has also received support from political leaders who still relish their country’s ties with France. Among them is President Alassane Ouattara of Ivory Coast who has been under intense pressure from other regional leaders to drop his support for the currency.
In countries led by such leaders who want to maintain cordial ties with France, anybody fighting the CFA franc is seen as an enemy of the state. In 2017, Kemi Seba the president of a non-Governmental Organisation called Urgences Panafricaniste was expelled from Ivory Coast for speaking against the CFA franc and another activist was arrested in Senegal for burning a CFA franc note.
Nevertheless the end seems to be getting closer for the CFA francs. As more and more African leaders and economists begin to question its viability the franc’s time is limited. For their part, the French have also said that they are willing to consider any proposed changes by African countries using the currency.