CFA: the grip France won't let go.
The economic hold that France still has on its former African colonies is summed up in the currency it created for them in 1945 called the CFA franc. CFA stands for Communaute Financiere de l'Afrique. And the tale of this currency is extraordinarily mind-numbing! Here, Regina Jere Malanda kicks off our special focus on the CFA, and why Francophone Africa now wants the arrangements that gave birth to the currency amended, some even say abrogated.**********
If you think it is bad enough that the majority of the former French colonies in Africa fall in the "Bottom 50" of the least developed countries in the world, spare a thought for this fact: Poor as they are, they have, for over six decades, been depositing 65% of their foreign reserves in the French Treasury in Paris--thanks to an archaic colonial arrangement linking their local currency, the CFA franc, to the French franc and now the euro.
This knotty monetary tangle leaves the former colonies economically powerless--more than 40 years after independence. Now many African economists and intellectuals are increasingly questioning the validity and moral grounds of the CFA arrangements (see President Abdoulaye Wades remarks on the CFA on page 33, and Prof Mamadou Koulibalys interview on page 28).
The CFA franc was created in 1945 as France's colonial currency by General Charles De Gaulle and his officials. It is still today the common currency of 14 countries in West and Central Africa, 12 of which are former French colonies. These 14 countries comprise the African financial community, which in turn is comprised of two regional economic and monetary groupings.
Eight West African countries: Benin, Burkina Faso, Cote d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo, form the West African Economic and Monetary Union (WAEMU), while six Central African countries: Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon make up the Central African Economic and Monetary Community (CEMAC). Each of these regional groupings issues its own CFA franc. WAEMU's CFA franc is issued by the Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), while CEMAC's CFA franc is issued by the Banque des Etats de I'Afrique Centrale (BEAC).
Although the two CFA francs are legal tender only in their respective regions, each region's central bank maintains the same parity of its CFA franc against the French currency, and capital can move freely between the two regions.
When Francophone Africa gained political independence in the 1960s, the currency was retained with the enticement (thrown in by the French government) to peg it to the French franc which guaranteed total and free convertibility. But there was, and has always been, a dark side to this linkage: Sadly for Africa, pivotal to this arrangement is that each CFA central bank must keep at least 65% of its foreign exchange reserves in an "operations account" with the French Treasury, and another 20% of reserves to cover financial liabilities. The CFA central banks must also impose a cap on credit extended to each member country equivalent to 20% of that country's public revenue in the preceding year. Even though the two CFA central banks maintain an overdraft facility with the French Treasury, the amount that can be withdrawn is limited by operating rules that have applied since 1973. The final say on these operating rules lies with France, to whose benefit the CFA foreign currency reserves work at the Paris Bourse (stock exchange).
Only one devaluation has occurred during the history of the CFA--from CFA50 to CFA100 to one French franc, and that was in January 1994. With the introduction of the euro on 1 January 1999, the French franc was fixed against the currencies of the 10 other European countries participating in the euro zone.
Interestingly, the African CFA member countries agreed to maintain the currency peg with France, following the euro's introduction, through an arrangement made by the French Treasury. Thus, as it has been since 1945, the French Treasury took on sole responsibility for guaranteeing the convertibility of the CFA into the euro arrangements. The fixed parity between the euro and the CFA franc is based on the official conversion rate for the French franc and the euro set in January 1999 (FF6.55957 to one euro). As the CFA100 to FF1 exchange rate has not changed since 1994, the CFA franc-euro exchange rate is simply CFA665.957 to one euro--permanently fixed!
This lack of flexibility has had telling effects on the economic growth of the African Francophone countries. France still has control of the monetary policy in the CFA zone and the African countries can do nothing about it. In his book, "Africanisation in French Africa", Brian Weinstein says, until 1960, France did not consider the complete independence of its African colonies as a legitimate goal, and few plans were made for a rapid transformation of the colonies, hence the French controlled and still control the economies of its ex-colonies.
While western economists and other proponents of the CFA have always extolled the virtues of the CFA franc, discerning African intellectuals and economists are of the view that the CFA has gone well beyond its sale-by-date and places enormous disadvantages on African economies in today's globalised environment. For example, with every growth in France's GDP and the euro appreciating against the US dollar, there is always the danger that the CFA franc may be linked at too high an exchange rate. The effects of this puts brakes on growth in the Africa countries, as rival commodity producers in Asia benefit from more flexible exchange rate policies. The supporters of the CFA argue that the currency's link to the euro promotes low inflation and fiscal rectitude in member countries. But, on the other hand, this link has made the exports of member countries more expensive. And clearly this arrangement is not sustainable and useful, although it might be argued that the CFA has benefited from not being constantly devalued and having kept the same fixed exchange rate parity for an amazing 45 years!
Some answers lie in figures: Since 1994, growth in the CFA countries has remained very modest. Overall output in member countries increased by only 2.8% compared to 8% in the previous years. Changes in the oil-price has also had adverse impact on the non-oil-producing CFA member countries because of the currency's direct link to the euro. International oil prices are set in dollars, but the value of the euro and thus the CFA have risen 30% against the dollar.
For the CFA zone, a strong exchange rate undermines export competitiveness as it makes local goods more expensive. A high fixed exchange rate is also incompatible with the productivity of regional economies and that weighs down their potential for economic growth. Put simply, a strong euro is equal to declining prices for African exports.
Also, although the CFA franc is based on shared history, the level of regional economic integration remains remarkably low. Intra-regional trade within the CFA zone as a whole is only 9% of the regions trade. The economy of the Central African zone depends significantly on oil prices while that of the West African zone is dependent on a more diverse set of agricultural commodities. And this presents further questions of the long-term viability of the CFA franc.
That is why, as readers will see from the following pages, some Africans, including President Wade of Senegal, want Francophone Africa to cut its colonial umbilical cord from France. But will Paris agree to let the Africans go?
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| Author: | Malanda, Regina Jere |
|---|---|
| Publication: | New African |
| Geographic Code: | 60AFR |
| Date: | Jan 1, 2008 |
| Words: | 1251 |
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