In a bold declaration during the 55th anniversary of Chad’s independence on August 11, 2015, President Idriss Deby pointed to a ‘cord preventing development in Africa that must be severed.’ This ‘cord’, now over seven decades old, is widely recognized as the CFA franc. Understanding the complexities of currencies like the CFA franc is crucial, especially when considering international transactions and exchange rates. For instance, if you’re looking at figures like 25 Euro En Franc Cfa, you’re delving into a system deeply rooted in history and ongoing debates about economic sovereignty and development in Africa.
The Foundations of the CFA Franc System
Mirroring other colonial powers like the UK and Portugal with their respective currency zones, France established its franc zone. The CFA franc, initially named the French African Colonial franc, was created on December 26, 1945, by a decree from General de Gaulle. Born from France’s ambition to foster economic unity within its colonies, the currency served as a tool to manage their resources, economic frameworks, and political systems. It was a mechanism of control, deeply embedded in the colonial structure.
Cartoon depicting the CFA Franc as a lock and key of French influence over African nations, highlighting debates around monetary sovereignty and economic control.
Following independence, the CFA franc underwent a name change. For the eight nations in the West African Economic and Monetary Union (WAEMU), including Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo, it became the African Financial Community franc. In Central Africa, for the six members of the Central African Economic and Monetary Community (CAEMC) – Cameroon, Central African Republic, Republic of the Congo, Gabon, Equatorial Guinea, and Chad – it was redesignated as the Central African Financial Cooperation franc. Interestingly, despite both zones representing economies of similar size (approximately 11% of sub-Saharan Africa’s GDP each), their currencies are not interchangeable.
The monetary agreements between France and these African nations established four key pillars underpinning the CFA franc:
Firstly, a fixed exchange rate initially with the French franc and now with the euro, set at 1 euro equalling 655.957 CFA francs. This fixed rate is central to understanding conversions like 25 euro en franc cfa, which remains consistent due to this peg. Secondly, a French guarantee ensuring the unlimited convertibility of CFA francs into euros. Thirdly, the centralization of foreign exchange reserves. Since 2005, both the Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC) have been mandated to deposit 50% of their foreign exchange reserves into a special ‘operating account’ held by the French Treasury. This percentage was even higher immediately post-independence, starting at 100% and then 65% from 1973 to 2005.
This arrangement acts as the foundation for the French ‘guarantee’ of convertibility. The agreements stipulate that foreign exchange reserves must exceed the money in circulation by a margin of 20%. Notably, before oil prices declined, the money supply coverage rate often neared 100%, suggesting that theoretically, these African nations could potentially operate without the French ‘guarantee’. The final, crucial pillar is the principle of free capital transfer within the franc zone.
Arguments Surrounding the CFA Franc: A Double-Edged Sword?
Despite its long-standing presence, the CFA franc faces considerable debate among African economists and intellectuals. Critics often raise three primary concerns. The first centers on the lack of monetary sovereignty. France effectively holds veto power within the boards of the two central banks in the CFA franc zone. Even after the BCEAO reforms in 2010, where monetary policy is managed by a committee, the French representative remains a voting member, while the WAEMU Commission president only attends in an advisory role. Given the fixed exchange rate with the euro, monetary and exchange rate policies are heavily influenced by the European Central Bank, whose focus on controlling inflation can hinder economic growth in the region.
Secondly, critics highlight the economic repercussions of the CFA franc, viewing it as a neocolonial instrument impeding economic advancement. They argue it obstructs industrialization and structural transformation, failing to promote trade among user nations or stimulate bank lending. Credit-to-GDP ratios in the WAEMU and CAEMC zones are significantly lower compared to sub-Saharan Africa and South Africa, indicating limited financial depth. The CFA franc is also accused of facilitating substantial capital flight. Essentially, critics argue that franc zone membership is linked to poverty and underdevelopment, pointing to the high number of Least Developed Countries within the zone and the economic stagnation experienced by others.
Finally, there’s the argument that the CFA franc undermines democratic progress. It’s contended that France has historically intervened to remove leaders who considered withdrawing from the CFA franc system, replacing them with more compliant figures. This political interference, particularly evident in CAEMC nations and Togo, is seen as detrimental to both economic development and the establishment of political systems accountable to their citizens.
Conversely, proponents of the CFA franc emphasize monetary cooperation rather than neocolonialism. They attribute the underdevelopment of franc zone nations to factors unrelated to monetary policy, such as political instability and ineffective domestic economic policies.
They portray the CFA franc as a stable and credible currency, a valuable attribute in a region often plagued by currency instability. However, this argument is challenged by the economic success of nations like Morocco, Tunisia, and Algeria, which adopted independent currencies post-independence and have outperformed CFA franc users economically.
Proponents also claim the CFA franc has kept inflation lower than the African average. Critics counter that this low inflation comes at the cost of weak economic growth and limited job creation. Furthermore, they point out that despite low average inflation, cities within the CFA zone, like Dakar, can still rank among the world’s most expensive.
Ultimately, the debate boils down to who benefits from the CFA franc. It’s seen as advantageous for large French and international corporations, central bank executives, elites seeking to move wealth, and political leaders aligned with French interests. However, for those focused on export competitiveness, affordable credit, job creation, regional trade integration, and a truly post-colonial Africa, the CFA franc is considered an outdated system that needs to be systematically dismantled.
From Taboo to a Growing Movement for Change
In October 2016, a book titled Liberate Africa from Monetary Slavery: Who Profits from the CFA Franc? sparked public debate. This publication coincided with a meeting of franc zone finance ministers and central bank governors, intentionally aiming to ignite discussion. Since then, the conversation has broadened, moving beyond academic circles.
While France maintains that the CFA franc is an ‘African currency’ supporting African nations’ sovereignty, and some leaders like Alassane Ouattara and Macky Sall echo this sentiment, describing it as a stable and expert-driven system, a growing chorus of dissent is emerging.
Critics now include not only radical economists but also former international officials like Kako Nubukpo, Sanou Mbaye, and Carlos Lopez, alongside African bankers like Henri-Claude Oyima.
The CFA franc debate is transitioning from a niche topic to a mainstream concern, attracting activists and fueling a social movement demanding the collective withdrawal of African nations from the system. Demonstrations organized by ‘SOS Pan-Africa’ in January 2017 across African and European cities signaled this shift, uniting intellectuals, pan-Africanists, and anti-globalization activists. This movement has even called for boycotts of French products as a symbolic act of protest.
The Economic Community of West African States (ECOWAS) is exploring an alternative with a planned joint currency. While its initial 2015 launch date and subsequent 2020 deadline have been missed, the momentum for change is undeniable. The future of the CFA franc appears increasingly uncertain, suggesting that its days are numbered.
This article was originally published on the Review of the African Political Economy (ROAPE) blog.
Photo credit: Kaysha.
Ndongo Samba Sylla (@nssylla) is a Research and Programme Manager at the Rosa Luxemburg Foundation and a published author on topics of fair trade and African economics.
The views presented in this article belong to the author and do not necessarily reflect the views of Africa at LSE blog or the London School of Economics and Political Science.
