From the CFA Franc to … Two CFA Francs

The CFA franc’s origins date back to the aftermath of World War II. Postwar conditions demanded a devaluation of the franc used in metropolitan France, but the question remained as to whether one same devaluation should be made across the whole colonial empire — thus maintaining a single currency for a single empire — or various devaluations, given that the war had such unequal impacts across different French-ruled territories.

The French Finance Ministry secretly opted for this latter course of action, which ultimately led, on December 26, 1945, to the official creation of the Franc of the French Colonies in Africa (FCFA). The new currency came with an incredible fixed parity — 1 CFA franc was to be worth 1.7 metropolitan francs. In 1948 this rate was further revised upward, with 1 CFA franc now fixed at 2 metropolitan francs! By contrast, as could be reasonably expected, British colonies in Africa had an exchange rate value lower than the British pound. The CFA franc was thus born overvalued, which translated into enduring low domestic and export competitiveness — two characteristics of economies producing and exporting primary goods and importing nearly everything else.

Indeed, from its creation, the CFA franc was an integral part of an economic mechanism designed to ensure that France’s sub-Saharan colonies would help rebuild a metropolitan economy which lacked the necessary vigor to face up to international competition. Simultaneously, the metropolitan French economy needed access to sources of raw materials that it could buy in its own currency, at below world-market prices.

As former colonies gained their independence, colonial currency blocs around Africa — the pound sterling area, the (Spanish) peseta area, the Belgian currency area, the (Portuguese) escudo area, and so on — were gradually dismantled. The newly independent states chose to issue their own national currencies, as a symbol of their rise to the rank of internationally recognized sovereign states.

The exceptions, here, were the sub-Saharan countries gathered in the franc zone. Indeed, France had conceded independence to such countries only on condition that African political leaders — most of whom had been educated in France — signed “cooperation agreements” governing future relations.

Covering fields ranging from raw materials to foreign trade, currency, diplomacy, the armed forces, higher education, and civil aviation, these agreements sought to entrench French sovereignty and hollow out the promise of independence. In July 1960, French premier Michel Debré wrote to his Gabonese counterpart Léon Mba, “We grant independence on the condition that the independent state endeavors to respect the cooperation agreements … The one does not go without the other.”

As far as currency was concerned, this “cooperation” meant that newly independent countries would have to keep the CFA franc.

Guinea, under the leadership of the trade unionist Sekou Toure, refused to play the rules of the game. After independence in 1958, it exited the franc zone in 1960. In retaliation, French secret services flooded its economy with counterfeit banknotes. According to their accounts, this sabotage was highly successful in disrupting the Guinean economy. Togo, under Sylvanus Olympio, also tried to escape the franc zone. On December 12, 1962, the London School of Economics graduate formally created a national central bank. On January 13, 1963 he was killed by Togolese soldiers trained in France. Togo’s national currency never saw the light of day.

Despite the fierce political repression imposed by the French government, Mali (1962–67), Madagascar (1972), and Mauritania (1972) did, however, quit the franc zone.

In the mid-1970s, the headquarters of the Bank of Central African States (BEAC) and Central Bank of West African States (BCEAO) were transferred to Yaoundé and Dakar respectively. Their initially 100 percent French staff was then “Africanized,” as were the notes and coins.

Today, the acronym “FCFA” in fact refers to two currencies which are not directly convertible with one another. It refers to both the franc issued by the BCEAO for the West African Economic and Monetary Union (WAEMU) member states (Benin, Burkina Faso, Ivory Coast, Mali, Niger, Senegal, Togo, and former Portuguese colony Guinea-Bissau, joining in 1997) and the separate economic and currency community using the franc issued by the BEAC (covering Cameroon, Chad, Central African Republic, Gabon, Congo, and the former Spanish colony of Equatorial Guinea, joining the group in 1985).

These fourteen countries plus the Comoros Islands (which uses its own franc issued by its own central bank, with a different parity rate for its peg to the euro) together constitute a set known as the “African countries of the Franc zone.” Their currencies are subject to the same rules of functioning — and if the CFA franc was once a thinly disguised French franc, today it can be considered a similarly disguised euro.

A Colonial Mechanism

The CFA franc system has, since its origins, rested on four pillars. The first is the fixed parity between the CFA franc and the French currency (the French franc and, from 1999, the euro). Next is the freedom of transfer of capital and income within the franc zone. Third is the guaranteed convertibility of the CFA franc at a fixed rate, namely the French Treasury’s promise to lend the BCEAO and the BEAC the desired volumes of French currency when they no longer have enough foreign reserves.

But as a counterpart to this “guarantee,” France is itself represented in the BCEAO and BEAC bodies — their boards, monetary policy committees, and control organs — with a statutory right of veto that has become implicit over time.

The other counterpart is that these two central banks are compelled to deposit part of their exchange reserves with the French Treasury. In the wake of independence, the obligatory deposit quota stood at 100 percent, before it was reduced to 65 percent in 1973 and then 50 percent in 2005.

This, indeed, is the fourth principle: the centralization of their exchange reserves in the hands of the French Treasury. This implies that the French Treasury is, effectively, the bureau de change of the countries that use the CFA franc. All conversion operations from the CFA franc into other currencies have to pass via the French Treasury. It is worth underlining, moreover, that the Banque de France holds 85 percent of the BCEAO’s monetary gold stock.

If France has been committed to maintaining the franc zone for over seventy years, that is because it benefits from it. This was explicitly recognized in a 1970 report by the French Socio-Economic Council which listed the “incontestable advantages for France.” First, France could pay its imports from franc zone countries in its own currency. This allowed it to save on foreign currency and keep up its own exchange rate. This has been important in a world where the dollar is the main currency for international trade and the French franc weak and unstable.

French companies operating in the zone moreover benefit from large — and stable — outlets for trade. Added to this, the French economy benefits from a trade surplus with regard to the franc zone countries, which also provide it a far from negligible amount of exchange reserves which have sometimes been used to pay France’s debts. French companies also have the guaranteed freedom to repatriate their revenue and capitals without any foreign exchange risk, thanks to the free-transfer policy and the fact that France decides the zone’s exchange and monetary policy.

Lastly, thanks to the CFA franc France enjoys a system of political control serving its own economic interests. This also costs France nothing, since its supposed convertibility “guarantee” has rarely been put into effect. Indeed, the French Treasury has often offered negative interest rates (in real terms) for African exchange reserves, meaning that the BCEAO and the BEAC have been losing money — it is as if they paid the French Treasury to keep their foreign reserves. And on the few occasions that African countries have had foreign-payments problems, France has appealed for IMF intervention or joined with the IMF to demand a currency devaluation, as in 1994.

The CFA franc’s benefits aren’t just for France, however — they extend to importers and to the African upper classes, whose appetite for imported luxuries explains their preference for an overvalued exchange rate. For African political leaders, the CFA franc is a mechanism to facilitate the transfer of financial resources, no matter how they were acquired. And, as long as they stay quiet on the issue, they have the backing of the French government against political dissidents and their own people in times of trouble. This is especially the case in Central African countries, most of whose presidents have been in power for more than three decades.

A Recipe for Underdevelopment

This has had grave effects on African economies. Franc zone membership is synonymous with very low levels of regional trade — 10 percent on average for the whole African franc zone and 5 percent for its Central African component — and with economic stagnation or even decline. In 2016 the largest franc zone country, Ivory Coast, had a real GDP per capita one-third lower than its 1978 peak. West Africa’s second-largest franc zone country, Senegal, had a real GDP per capita in 2016 of the same order of magnitude as its 1960 level. Meanwhile, the franc zone’s three largest Central African economies — Cameroon, Congo, and Gabon — have still not returned to their highest levels of real GDP per capita, reached in 1986, 1984, and 1976 respectively.

Adopting a longer-term perspective, we see that the high growth levels observed in the West African franc zone over the last ten years ought to be ascribed — for now, at least — to “making up” for “lost decades.” Clearly the CFA franc is not the only factor explaining this weak economic performance, which can also be found in some non-franc zone countries. But it has, without doubt, made a specific contribution to this malaise, as a colonial-type extraversion mechanism.

Firstly, this is because the choice of a rigidly fixed parity implies the absence of any adjustment mechanism in crisis periods other than “internal devaluation.” This implies the harsh austerity policies currently being implemented in the Central African franc zone: higher taxes on households and workers, less public spending on key sectors like health, education, and agriculture, increased interest rates on bank loans, massive layoffs following the bankruptcies of private-sector companies and public-sector downsizing, etc. In times of crisis, France and the IMF typically advocate policies aiming at reducing aggregate demand, in order for franc-zone countries to obtain a balance of payments equilibrium.

Secondly, the CFA franc has since its birth suffered from chronic overvaluation, varying according to the country. Its pegging to the euro, which replaced the franc in 1999, has aggravated the price-competitiveness problems of the countries that use it.

Indeed, the goal set for franc-zone countries’ monetary and exchange rate policy — namely, to defend parity with the French currency at all cost — translates into a restriction of the possibilities of financing their economies. Lastly, freedom of capital movements facilitates the straightforward export of local economic surpluses.

All these handicaps associated with the CFA franc system were indicated very early on by African political leaders like Mali’s first postindependence president Modibo Keita and by economists like the Franco-Egyptian Samir Amin (author of Imperialism and Unequal Development), Senegal’s Mamadou Diarra, and Cameroon’s Joseph Tchundjang Pouemi. But France — allied to usually loyal African heads of state — has never wanted to take account of African demands for monetary independence. Rather, it took sustained mobilizations by pan-Africanist movements, intellectuals and economists around Africa and the diaspora to change the game.

Macron the “Magician”

Speaking in Ougadougou, Burkina Faso in November 2017, Emmanuel Macron maintained that the CFA franc was a “non-issue” for France. Recently, however, he has reviewed his position. On December 21 he was in Abidjan, Ivory Coast, alongside that country’s president Alassane Ouattara, who came to power in 2011 with the support of the French government, which helped to overthrow his rival Laurent Gbagbo by military force. They announced three reforms to the West African CFA franc: the end of the French presence in the BCEAO; the end of its obligation to deposit half its exchange reserves at the French Treasury; and a change in the CFA franc’s name, to the eco.

According to former BCEAO governor Philippe Henri Dacoury-Tabley, the reforms announced by Macron and Outtara are a “sleight of hand” — and he’s not wrong. Of the four pillars of the CFA system, the only one affected by these reforms is the centralized control of exchange reserves. But this isn’t the key issue.

Thanks to the renewal of the monetary cooperation agreement which links it to the WAEMU, France has ensured that this formal bond of monetary submission will be maintained. With the eco, both France’s putative role as a “guarantor” and the CFA franc’s fixed parity with the euro will remain.

Despite the triumphant announcement of the withdrawal of French officials and the end of African states depositing their exchange reserves in the French Treasury, the reality is rather more nuanced. The Financial Times describes these reforms as a “revolution” yet notes that France will designate an “independent” representative at the BCEAO and through this figure will control the day-to-day management of its exchange reserves.

These symbolic reforms do not, then, significantly change the conduct of BCEAO monetary and exchange rate policy. Rather, they conform to the logic of ridding the CFA franc of its most overtly colonial symbolism. French representation in BCEAO bodies, the depositing of African exchange reserves in the French Treasury, and the survival of the “franc” name — as well as the production of CFA franc coins and notes in France — are so many symbols strongly challenged by pan-Africanist movements and African public opinion in general.

Kidnapping the Eco

In choosing to rename the CFA franc the eco, Macron and Outtara have at least managed to sow confusion, aided by the lack of clarity thus far seen in French and international press.

But their move is also part of a wider picture. In June 2019 the Economic Community of West African States (ECOWAS), bringing together eight CFA franc countries and seven others with their own currencies, chose eco (short for ECOWAS) as the name for its planned single currency — a project going back to the mid-1980s. ECOWAS decided it would peg its future single regional currency to a basket of foreign currencies, including the US dollar, the euro, and presumably other major currencies.

To join the future eco zone, each country has to fulfill various entry (“nominal convergence”) criteria: a public deficit below 3 percent of GDP, a public debt ratio below 70 percent of GDP, a below-10 percent inflation rate, etc. These criteria were copied from the eurozone, which has, sadly, provided the ECOWAS experts (mostly neoclassical economists) with their main source of inspiration.

The problem is, with the exception of Togo the countries using the CFA franc in West Africa do not meet the ECOWAS convergence criteria. And it is hardly certain that they will do by next year. So why rename the CFA franc, as the eco? For some analysts, Macron and Outtara have “kidnapped” the eco, seeking to short-circuit the ECOWAS monetary integration project and especially to isolate Nigeria. Africa’s biggest economic and demographic force, Nigeria represents more than two-thirds of ECOWAS’s GDP and at least half of its population.

France has never hidden its ambition to extend the West African Economic and Monetary Union (currently grouping the eight West African CFA franc countries alone) to other countries in the region. The exception, however, is Nigeria, too big to be able to benefit from any supposed “guarantee” from France or the European monetary authorities. Former French Economy Minister and IMF director Dominique Strauss Kahn proposed as much in a 2018 report. A similar viewpoint appears in a recent report coordinated by another former French Economy Minister, Hervé Gaymard.

Whatever the liberal Macron says, France is not prepared to give up its domination-by-currency — its last remaining instrument for protecting its economic interests, apart from outright military intervention. Thanks to the unconditional support of Ivory Coast and Senegal it hopes to face down Nigeria and turn the process of regional monetary integration in its own favor.

Indeed, French elites are still unable to think about their own country’s future, except in terms of the continued subjection of Africa. Even back in 1957, the future Socialist president François Mitterrand opined that “Without Africa, France will have no history in the twenty-first century.” This outlook has continued to guide French foreign policy: as recently as 2013, the French Senate expressed the same convictions in a report entitled “Africa is Our Future.”

Today, France faces relative economic decline in a region it long considered its own private preserve. Even faced with the rise of other powers like China, France has no intention of abdicating its mastery — it will fight to the last. Yet happily, this will set it on collision course resistance of a pan-Africanist youth which seeks to turn the page on European colonialism, in both old and new forms.