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How does the CFA Franc Zone really work?

THE 14 AFRICAN countries of the Franc Zone currently consist of two separate groups of Sub-Saharan countries plus the Comoros.

The first group comprises the seven members of the West African Monetary Union (Umoa): Benin, Burkina Faso, Cote d'Ivoire, Mali, Niger, Senegal and Togo. These seven have assigned responsibility for conducting monetary policy to a common central bank, the Banque Centrale des Etats de 1'Afrique de 1'Ouest (BCEAO).

The second group consists of the six members of another common central bank, the Banque des Etats de 1'Afrique Central (BEAC): Cameroon, the Central African Republic, Chad, the Congo, Equatorial Guinea and Gabon.

Each of the two groups and the Comoros maintain separate currencies - the Franc de la Communaute Financiere Africaine for the UMOA countries, the Franc de la Cooperation Financiere en Afrique Centrale for the BEAC countries and the Comorian franc for the Comoros. The currencies of the two groups and the Comoros, however, are commonly referred to as the CFA franc.

The CFA franc was pegged to the French franc at a rate of CFA50=FF1 for 45 years, prior to the 12 January 1994 devaluation. The Comorian franc was pegged at a rate of CF50=FF1 since 1988.

On 12 January 1994, however, the rates were changed to CAF100=FF1 and to CF100=FF1.

Each of the two common central banks and the Central Bank of the Comoros have an operations account at the French Treasury, into which they deposit 65% of their foreign-exchange holdings.


Convertibility of the CFA franc into French francs through authorised intermediaries is supported by provision for central-bank overdrafts on these accounts. Three basic mechanisms have traditionally been used to control monetary growth in the CFA Franc Zone:

* In the central banks' operations accounts, interest is charged on overdrafts, and conversely, interest is paid on credit balances.

* When the balance in a central bank's operations account falls below an agreed target level, it is required to restrict credit expansion, generally by increasing the cost to membercountries of rediscounting paper with the central bank or by restricting member-countries' access to rediscounting facilities.

* Credit provided by the central banks to the government sector of each of their membercountries can be no larger than 20% of its fiscal revenue in the previous year.

These mechanisms are intended not to place an absolute ceiling on domestic credit growth but rather to encourage financial discipline and discourage inflation in the Franc Zone countries.
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Publication:African Business
Date:May 1, 1994
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