The future of the CFA franc in the six-member Central African Economic and Monetary Community (CEMAC) is being debated after it was announced last week, that eight West African countries have agreed to change the name of their common currency to Eco. They also severed the CFA franc’s links to former colonial power, France.
The CFA franc used by west and central African states is considered by many, as a sign of French interference in its former African colonies and an integral reason for the underdevelopment of CEMAC, which remains the poorest economic bloc in Africa.
Following agreements signed in 1948, The CEMAC member states have more than 50 percent of their financial reserves kept in the French treasury. Chad, Gabon, Equatorial Guinea, Central African Republic and Congo use the CFA franc.
The CFA franc was pegged to the French franc until 1999, when its value was fixed at about 660 CFA francs to one euro.
When French-speaking African states became independent, it was necessary to define the monetary relations between themselves, France and the rest of the world. With the exception of Guinea, then Mali, who chose to have an independent currency, other states’ monetary relations arose directly from the status quo, and the three currencies issued respectively in West Africa, East Africa and Madagascar remained in place.
They formed the basis for the exchange rate regime of independent states in the Franc zone.
The Franc zone is however not only an exchange system but also one of economic cooperation and there were three hallmarks to the exchange system in African countries of the Franc zone – convertibility, exchange rate and operations.
On a recent visit to Ivory Coast, French President, Emmanuel Macron and Ivorian President, Alassane Ouattara announced an overhaul of the CFA franc.
The French-backed currency was initially pegged to the French franc but has been linked to the euro for about two decades.
According to Ouattara, the currency will be renamed the “eco” next year and French officials will no longer be represented on its governing bodies. In addition, a requirement that the eco’s member states keep half their foreign reserves in France will be rescinded.
The currency will also remain pegged to the euro.
According to Daniel Ona Ondo, president of the CEMAC commission, the six member states’ economic growth rate is estimated at 3 percent in 2019 — up from barely 1 percent in 2018 — and inflation remains under control at less than 3 percent, adding that the most demanding issue is regional integration before currency reforms.
Fourteen west and central African countries divided into two monetary unions, ECOWAS and CEMAC, use the CFA franc.
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