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“The Economic And Political Effects Of The Franc-CFA Zone”
[ The Master: Jacque Chirac and the Slaves: Compaoré, Mulah Omar, Biya the Cameleon, Ngesso the shame of Kongo ]
by Dr Gary K Busch
One of the most important influences in the economic and political life of African states which were formerly French colonies is the impact of a common currency; the Communuate Financiere de l’Afrique (‘CFA’) franc. There are actually two separate CFA francs in circulation. The first is that of the West African Economic and Monetary Union (WAEMU) which comprises eight West African countries (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. The second is that of the Central African Economic and Monetary Community (CEMAC) which comprises six Central African countries (Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon), This division corresponds to the pre-colonial AOF (Afrique Occidentale Française) and the AEF (Afrique Équatoriale Française), with the exception that Guinea-Bissau was formerly Portuguese and Equatorial Guinea Spanish).
Each of these two groups issues its own CFA franc. The WAEMU CFA franc is issued by the BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest) and the CEMAC CFA franc is issued by the BEAC (Banque des Etats de l’Afrique Centrale). These currencies were originally both pegged at 100 CFA for each French franc but, after France joined the European Community’s Euro zone at a fixed rate of 6.65957 French francs to one Euro, the CFA rate to the Euro was fixed at CFA 665,957 to each Euro, maintaining the 100 to 1 ratio. It is important to note that it is the responsibility of the French Treasury to guarantee the convertibility of the CFA to the Euro.
The monetary policy governing such a diverse aggregation of countries is uncomplicated because it is, in fact, operated by the French Treasury, without reference to the central fiscal authorities of any of the WAEMU or the CEMAC. Under the terms of the agreement which set up these banks and the CFA the Central Bank of each African country is obliged to keep at least 65% of its foreign exchange reserves in an “operations account” held at the French Treasury, as well as another 20% to cover financial liabilities.
The CFA central banks also impose a cap on credit extended to each member country equivalent to 20% of that country’s public revenue in the preceding year. Even though the BEAC and the BCEAO have an overdraft facility with the French Treasury, the drawdowns on those overdraft facilities are subject to the consent of the French Treasury. The final say is that of the French Treasury which has invested the foreign reserves of the African countries in its own name on the Paris Bourse.
In short, more than 80% of the foreign reserves of these African countries are deposited in the “operations accounts” controlled by the French Treasury. The two CFA banks are African in name, but have no monetary policies of their own. The countries themselves do not know, nor are they told, how much of the pool of foreign reserves held by the French Treasury belongs to them as a group or individually. The earnings of the investment of these funds in the French Treasury pool are supposed to be added to the pool but no accounting is given to either the banks or the countries of the details of any such changes. The limited group of high officials in the French Treasury who have knowledge of the amounts in the “operations accounts”, where these funds are invested; whether there is a profit on these investments; are prohibited from disclosing any of this information to the CFA banks or the central banks of the African states.
This makes it impossible for African members to regulate their own monetary policies. The most inefficient and wasteful countries are able to use the foreign reserves of the more prudent countries without any meaningful intervention by the wealthier and more successful countries. The fact that as the French GDP grows and the parity of the Euro to the dollar (the main currency of international trade) appreciates there is the constant danger that the CFA franc may be fixed at too high an exchange rate. This dampens the growth in trade between Africa and the rest of the world and allows other countries, especially in Asia, to use their more flexible exchange rates to gain market share, supplanting the Africans.
The creation and maintenance of the French domination of the francophone African economies is the product of a long period of French colonialism and the learned dependence of the African states. For most of francophone Africa there is only limited power allowed to their central banks. These are economies whose vulnerability to an increasingly globalised economy is increasing daily. There can be no trade policy without reference to currency; there can be no investment without reference to reserves. The politicians and parties elected to promote growth, reform, changes in trade and fiscal policies are made irrelevant except with the consent of the French Treasury which rations their funds. There are many who object to the continuation of this system. President Abdoulaye Wade of Senegal has stated this very clearly “The African people’s money stacked in France must be returned to Africa in order to benefit the economies of the BCEAO member states. One cannot have billions and billions placed on foreign stock markets and at the same time say that one is poor, and then go beg for money.”
How Did This Happen?
This system of dependence is a direct result of the colonial policies of the French Government. In the immediate post-war period after the signing of the Bretton Woods Agreement in July 1944 the French economy urgently needed to recover. To assist in this process it set up the first CFA amongst its African colonies to guarantee a captive market for its goods. The principal decision which resulted from the Bretton Woods Agreement was the abandonment of the Gold Standard. In short, the new system gave a dominant place to the dollar. The other currencies saw their exchange rate indexed to the dollar. The reserves of the European central banks at that time consisted of currencies of dubious post-war value and gold which had been de-pegged from the fluctuations of the currency. For this reason France needed the currencies of its colonies to support its competitiveness with its American and British competitors. De Gaulle and his main economic advisor, Pierre Mendès France met with some African leaders and developed a Colonial Pact which would enshrine this is in a treaty (with both public and secret clauses). The genius behind this was Jacques Foccart, France’s “Mister Africa”.
Decolonization south of the Sahara did not happen as de Gaulle had intended. He had wanted a Franco-African Community that stopped short of total independence. But when Sekou Toure’s Guinea voted “no” in the 1958 referendum on that Community, the idea was effectively dead. Guinea was cast into outer darkness because of its decision and a Community of sorts came into existence, but the call of full independence proved too strong to resist.
[ The Master: Jacque Chirac and the Slaves: Compaoré, Mulah Omar, Biya the Cameleon, Ngesso the shame of Kongo ]by Dr Gary K Busch
One of the most important influences in the economic and political life of African states which were formerly French colonies is the impact of a common currency; the Communuate Financiere de l’Afrique (‘CFA’) franc. There are actually two separate CFA francs in circulation. The first is that of the West African Economic and Monetary Union (WAEMU) which comprises eight West African countries (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. The second is that of the Central African Economic and Monetary Community (CEMAC) which comprises six Central African countries (Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon), This division corresponds to the pre-colonial AOF (Afrique Occidentale Française) and the AEF (Afrique Équatoriale Française), with the exception that Guinea-Bissau was formerly Portuguese and Equatorial Guinea Spanish).
Each of these two groups issues its own CFA franc. The WAEMU CFA franc is issued by the BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest) and the CEMAC CFA franc is issued by the BEAC (Banque des Etats de l’Afrique Centrale). These currencies were originally both pegged at 100 CFA for each French franc but, after France joined the European Community’s Euro zone at a fixed rate of 6.65957 French francs to one Euro, the CFA rate to the Euro was fixed at CFA 665,957 to each Euro, maintaining the 100 to 1 ratio. It is important to note that it is the responsibility of the French Treasury to guarantee the convertibility of the CFA to the Euro.
The monetary policy governing such a diverse aggregation of countries is uncomplicated because it is, in fact, operated by the French Treasury, without reference to the central fiscal authorities of any of the WAEMU or the CEMAC. Under the terms of the agreement which set up these banks and the CFA the Central Bank of each African country is obliged to keep at least 65% of its foreign exchange reserves in an “operations account” held at the French Treasury, as well as another 20% to cover financial liabilities.
The CFA central banks also impose a cap on credit extended to each member country equivalent to 20% of that country’s public revenue in the preceding year. Even though the BEAC and the BCEAO have an overdraft facility with the French Treasury, the drawdowns on those overdraft facilities are subject to the consent of the French Treasury. The final say is that of the French Treasury which has invested the foreign reserves of the African countries in its own name on the Paris Bourse.
In short, more than 80% of the foreign reserves of these African countries are deposited in the “operations accounts” controlled by the French Treasury. The two CFA banks are African in name, but have no monetary policies of their own. The countries themselves do not know, nor are they told, how much of the pool of foreign reserves held by the French Treasury belongs to them as a group or individually. The earnings of the investment of these funds in the French Treasury pool are supposed to be added to the pool but no accounting is given to either the banks or the countries of the details of any such changes. The limited group of high officials in the French Treasury who have knowledge of the amounts in the “operations accounts”, where these funds are invested; whether there is a profit on these investments; are prohibited from disclosing any of this information to the CFA banks or the central banks of the African states.
This makes it impossible for African members to regulate their own monetary policies. The most inefficient and wasteful countries are able to use the foreign reserves of the more prudent countries without any meaningful intervention by the wealthier and more successful countries. The fact that as the French GDP grows and the parity of the Euro to the dollar (the main currency of international trade) appreciates there is the constant danger that the CFA franc may be fixed at too high an exchange rate. This dampens the growth in trade between Africa and the rest of the world and allows other countries, especially in Asia, to use their more flexible exchange rates to gain market share, supplanting the Africans.
The creation and maintenance of the French domination of the francophone African economies is the product of a long period of French colonialism and the learned dependence of the African states. For most of francophone Africa there is only limited power allowed to their central banks. These are economies whose vulnerability to an increasingly globalised economy is increasing daily. There can be no trade policy without reference to currency; there can be no investment without reference to reserves. The politicians and parties elected to promote growth, reform, changes in trade and fiscal policies are made irrelevant except with the consent of the French Treasury which rations their funds. There are many who object to the continuation of this system. President Abdoulaye Wade of Senegal has stated this very clearly “The African people’s money stacked in France must be returned to Africa in order to benefit the economies of the BCEAO member states. One cannot have billions and billions placed on foreign stock markets and at the same time say that one is poor, and then go beg for money.”
How Did This Happen?
This system of dependence is a direct result of the colonial policies of the French Government. In the immediate post-war period after the signing of the Bretton Woods Agreement in July 1944 the French economy urgently needed to recover. To assist in this process it set up the first CFA amongst its African colonies to guarantee a captive market for its goods. The principal decision which resulted from the Bretton Woods Agreement was the abandonment of the Gold Standard. In short, the new system gave a dominant place to the dollar. The other currencies saw their exchange rate indexed to the dollar. The reserves of the European central banks at that time consisted of currencies of dubious post-war value and gold which had been de-pegged from the fluctuations of the currency. For this reason France needed the currencies of its colonies to support its competitiveness with its American and British competitors. De Gaulle and his main economic advisor, Pierre Mendès France met with some African leaders and developed a Colonial Pact which would enshrine this is in a treaty (with both public and secret clauses). The genius behind this was Jacques Foccart, France’s “Mister Africa”.
Decolonization south of the Sahara did not happen as de Gaulle had intended. He had wanted a Franco-African Community that stopped short of total independence. But when Sekou Toure’s Guinea voted “no” in the 1958 referendum on that Community, the idea was effectively dead. Guinea was cast into outer darkness because of its decision and a Community of sorts came into existence, but the call of full independence proved too strong to resist.
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