Eight francophone African states, Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo have announced a break with their colonial past by dropping the use of the CFA franc.
The countries that form the West African economic and monetary union have agreed to start using a new currency, the Eco, which is scheduled for launch in June, online publication, The Conversation, reported. The eight states are members of the economic community of West African states (ECOWAS), a wider regional economic community, which also has a plan to introduce a single currency in 2020.
The decision by the francophone countries marks a break with their colonial past. The CFA franc was created by France in 1945 as a single currency for its former West African colonies. Six other countries, including Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon also use the CFA franc. The six comprise the Central African economic and monetary union. Of the six, Guinea-Bissau and Equatorial Guinea weren’t French colonies.
The currency’s value was originally pegged to the French franc, which was subsumed into the Euro after France became a member of the Eurozone, a group of European countries belonging to a monetary union. The CFA franc has since been pegged to the Euro, and underpinned by France. This requires that the francophone countries keep 50% of their foreign exchange reserves with the French treasury. This is one of the reasons the CFA franc has been criticised as exploitative.
Pegging the CFA franc, first to the French franc and later the Euro, has delivered some benefits for the francophone states. For one, relative to other African countries, the CFA franc zone member states have had very low inflation and a stable currency, which was devalued once in 1994. Critics of the CFA franc have pointed to France’s right of veto as one that deprives West African states of their monetary sovereignty.
Monetary sovereignty refers primarily to three rights including the right to issue currency (coins and banknotes) that is legal tender within its territory, the right to determine and change the value of that currency, and the right to regulate the use of that currency, or any other currency, within its territory. Introduction of the Eco will diminish France’s influence in the monetary union. France will no longer have representation on the monetary union board. CFA franc countries will also no longer be required to keep half of their foreign exchange reserves with the French Treasury.
France maintains, however, that it will continue to support the peg of the Eco to the Euro. Should countries using the Eco not be able to pay for their imports, France will cover these payments. The catch though is that such an event will trigger France’s return to the monetary policy committee.
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Source: IOL
