The CFA Franc is one of the most hotly debated currency ever used by any group of countries. Many don’t like it and they argue that the currency is a colonial tool and has helped to impoverish the former French colonies of Africa. Proponents of the currency have weighed in to say that the currency is fine, it’s just the various African countries that have terrible economic policies.
Italy's Deputy Prime Minister has blamed France for impoverishing Africa and encouraging migration to Europe.
He points to a colonial-era currency that 14 African countries use as the reason.
— BBC Reality Check (@BBCRealityCheck) January 25, 2019
However, in this post, I want to give a comprehensive view about the CFA Franc, what the CFA Franc is and why certain African countries use it. I’ll go further to explain the arguments for and against the currency and then I’ll give my final thoughts.
What Is the CFA Franc?
Created in 1945, the CFA Franc is an acronym for Communauté Financière d’Afrique (“Financial Community of Africa”). The CFA Franc is the name of two regional currencies currently being used most French-speaking African countries. The West African CFA Franc is the version of CFA currently used by eight west African countries under the West African Economic and Monetary Union. Meanwhile the Central African Franc is used by six African countries, under the Economic and Monetary Community of Central Africa.
"France agreed to grant independence to its sub-Saharan Africa colonies, provided they accept to use the CFA franc and [France retained] a monopoly on their raw materials." – Senegalese economist Ndongo Samba Syllahttps://t.co/V9xaOnF18t
— Onye Nkuzi (@cchukudebelu) January 25, 2019
The both CFA Franc currencies were created by France in 1945 to serve as the currency in its then African-colonies. Yet after independence, most of these French colonies have still not stopped using the CFA Franc.
The CFA franc was created with a fixed exchange rate versus the French franc. But since 1999, the French has been using the Euro. However, this did not affect the value of the CFA Franc, it’s value is still pegged to the Euro.
Meanwhile the CFA Franc is printed by France, but the quantity or supply of the currency is decided by the central banks of the two currency zones. Additionally, a French official sits on the board of both regional central banks which gives France huge control over what they can do.
Paris summoned Italian ambassador after #dimaio Italian DPM claimed French colonialism is the reason so many migrants die in Mediterranean. He argued Africa's use of the CFA franc backed by France has held their economies back. Sane up sum of claim here. https://t.co/76kV655lWK
— Patrick Wintour (@patrickwintour) January 22, 2019
Additionally though, the French require that CFA countries keep 50% of all their foreign exchange reserves with the French treasury. That’s a completely unstable system and means that countries literarily have to beg to get their money out of the French treasury when the need arises. According to some economist, they argue that the French use the money to fund their own public debt.
In December 2017, the central banks of West Africa and Central Africa allegedly had €5bn (£4.3bn) and €3.9bn in the French treasury, respectively.
Meanwhile African countries receive just 0.75% interest on their reserves. But it gets worse when inflation is high in the Eurozone market.
Who uses the CFA?
For the West African region, the CFA Franc is used by eight countries. Namely: Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. And in the Central African region, the Franc is used by six countries, namely Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea and Gabon.
Why Do African Countries Still Use the CFA Franc?
After decades of independence, you’d have thought these African countries would feel the need to dump the franc. But unfortunately, no one is even considering. There are few reasons why these 14 African countries still use the colonial currency.
First, France would never really allow it. In 2017, French President Emmanuel Macron told these 14 African countries that they are were free to dump the currency anytime they want. To many people that contradicts views that the French would never allow anyone leave the CFA Zone.
However, that statement was a rues. The French have long used coercive tactics to force African countries into following it’s whims. Since the early post-colonial period, the French have used coups to unseat African leaders and have also used even more disruptive tactics to exert their influence over African countries. So if a leader thinks he can pull out of the monetary zone, the French will bite. No leader wants this unfortunately.
Second, the CFA is relatively stable. No doubt, the CFA franc is quite stable and since its creation, the currency has had a fairly stable value. However in 1994, the currency was singlehandedly devalued by France. The French reduced the value of the CFA Franc by 50%. That’s a huge blow to these 15 countries’ trade balance. However, it still has to be said that the currency is pretty stable and this has helped reduce risks of inflation, even though these countries have lost their monetary powers.