Franc CFA - The controversial currency at the heart of the France-West Africa relationship

The Franc CFA was created on December 26, 1945, to enhance stability among the territories belonging to France after World War II.

France established the CFA Franc to replace the West African Franc that was circulating in its colonies. According to analysts, this unified currency serves as a tool for France to maintain influence over the economy and administration of countries in the region.

Initially, the Franc CFA was pegged to the French Franc at a fixed exchange rate. This protected the colonies from the negative effects of a weak French Franc, making imports from France cheaper but at the same time reducing their global competitive advantage.

In the 1950s, the Franc CFA became the common currency for French-speaking colonies in Africa, maintaining a fixed exchange rate with the French Franc. In the 1960s, although they had gained independence, most of these countries continued to use the Franc CFA as their official currency through new agreements with France. Later, the Franc CFA was divided into two separate currencies:

• West African CFA Franc ( used in West African countries ) and
• Central African Franc ( is used in Central African countries ), each region has its own central bank.

When the Euro was introduced in 1999, the CFA Franc was pegged to the Euro, continuing to maintain a fixed exchange rate mechanism.

Franc CFA Zone

The Franc CFA zone includes 14 countries in the African Sahel region, each linked to one of two currency unions:

• West African Economic and Monetary Union (WAEMU, abbreviated in French as UEMOA) and
• Central African Economic and Monetary Community (CAEMC, abbreviated in French as CEMAC)

WAEMU includes Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, and Togo, while CEMAC includes Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon.

The Franc CFA zone imposes some restrictions on economic independence:

• Individual countries in the zone cannot devalue their currencies to enhance the attractiveness of exports, hindering economic growth.
• The common monetary policy in the CFA zone limits the ability of each country to respond to its own specific challenges.
• Export promotion policies may face difficulties if they do not align with the overall objectives of the zone.
• The increase in the price of the Euro makes exports more expensive, negatively affecting competitiveness in the market.

The final factor that creates the domino effect, causing the economy to depend on certain commodities and ultimately leading to low productivity in other sectors.

Initially, members were required to deposit 100% of their foreign exchange reserves into the French Treasury to ensure that their currencies would not be devalued. Although this rate was reduced to 65% in 1973 and continued to decrease to 50% in 2005, it remains the most controversial aspect of the CFA Franc. According to analysts, the requirement for member countries to hold a significant portion of their foreign exchange reserves in a common fund managed by the French Treasury has limited their ability to devalue their currencies, which could help enhance the competitiveness of their exports.

Reform

In 2019, the Macron-Ouattara initiative was proposed to modernize the West African Franc CFA and reduce France's influence.

Named after French President Emmanuel Macron and Ivorian President Alassane Ouattara, this initiative includes three main reforms:

• Rename the currency to 'Eco'
• Abolish the requirement for WAEMU countries to send reserves to the French Treasury
• Withdraw the representative of France from the Board of Directors of the WAEMU Central Bank, also known as BCEAO (Banque Centrale des États de l'Afrique de l'Ouest)

However, the implementation of this initiative has been delayed due to multiple reasons, including the Covid-19 pandemic and the disparity in economic conditions among member countries.

However, efforts to transition to Eco are still ongoing and negotiations are said to be at a crucial stage. Nevertheless, even during this process, France also faces accusations that it is obstructing the reform efforts of African governments.