Money problems

The pros and cons of the CFA franc zone

By Casimir Oyé Mba

Posted on January 20, 2020 08:05

People exchange money in Abidjan on last day of changeover. © People exchange money in Abidjan, December 31, 2004. REUTERS/Thierry Gouegnon
People exchange money in Abidjan, December 31, 2004. REUTERS/Thierry Gouegnon

With the debate on the fate of the CFA franc arousing impassioned arguments, policy-makers have a lot of hefty decisions to take on the future of African monetary unions.

Regardless of who is right, some form of monetary union — with or without the Eco — has many advantages in terms of economic stability and governance.

All the affected countries after achieving independence in 1960 chose to keep the CFA and remain in the franc zone. The exception was Guinea, which voted ‘no’ in its 1958 referendum. Since then, this decision has continued to fuel discussions and controversies, especially after the severe devaluation of January 1994, which proved traumatic for our leaders and our populations.

As we know, the main features of the franc zone are the fixed exchange rate, formerly with the French franc, now with the euro; the centralisation of our reserves in an “operations account” with the French treasury, from which France’s guarantee of unlimited convertibility of the CFA franc derives; and the freedom of transfers within the franc zone. The passionate nature of the debate means any person finding any advantage to this arrangement is considered being France’s servant.

However, looking at things calmly, it must be acknowledged that belonging to the franc zone is not devoid of all merit. It provides monetary stability, which gives our states and our partners greater financial visibility. It also brings inflation under better control, compared with most other countries on the continent. But it also provides the mutual “surveillance” that is implicit in being in a monetary union; it keeps us from giving in to temptations that would be harder for us to resist on our own.

The virtues of the franc zone

There is no doubt membership of the franc zone implies a sharing of sovereignty with France and with the other members of the monetary union. But we do the same when joining any international organisation (UN, AU, IMF, etc.). This is a political choice made by our leaders. How can we believe that this stems only from a “fear of France” and the threat of destabilisation if we were to show any desire to get out of it?

It is also commonly accepted that because our banknotes are printed in France, this is material proof of our enslavement. I have visited the sites where our banknotes and coins are manufactured. There I found currency from non-French-speaking African countries and Latin American countries also being manufactured. The manufacture of our banknotes and coins is not covered by the monetary agreements signed with the French state. We can take another supplier other than the Banque de France. We can even take care of it ourselves. I understand that our central banks have started to think about this.

What can we do?

Since its creation, the franc zone has undergone several reforms in response to political and economic needs. Others will come, as public opinion so desires. African leaders (Presidents Idriss Déby Itno, Alassane Ouattara and Patrice Talon) have spoken out on this subject, each in his own way. On the side of our partners, President Emmanuel Macron and finance minister Bruno Le Maire said they were open to a broad discussion to explore “ambitious” avenues. Africans from all walks of life (economists, intellectuals, anonymous people on social networks, artists) addressed the issue. This abundance of ideas is legitimate and healthy.

West Africa has already decided to create a common currency, the Eco, for the member countries of the Economic Community of West African States by 2020. It remains to be seen how it will be set up. Central Africa has also begun its currency examination, the elements of which will soon be known.

As our countries are sovereign, all options must be put on the table, from a profound and substantial overhaul of the mechanisms to a possible exit from the franc zone. No one can now prejudge what will ultimately be done, but the decision — a highly political one — is ours.

Money, a tool for economic governance

Whatever its merits, in the minds of many Africans, especially the youth, the franc zone remains marked by the fact that, as an original sin, it is the work of the coloniser. As such, its disappearance is rightly or wrongly perceived as the completion of decolonisation. This requirement seems to me to be historically unavoidable in the long run. Wisdom nevertheless requires us to banish improvisation and haste.

Money is an essential instrument of economic governance. Well managed, it facilitates and accompanies development. If badly managed, it undermines the economy, impoverishes populations and can lead to serious problems. But money does not create development. Other ingredients are equally important for harmonious economic deployment and progress: fiscal policy, the relevance of the choice of investments, the competitiveness of economic structures – private and public – the business environment, the debt strategy, the functioning of justice, the efficiency of the administration and the banking system, the relationship between the central bank and the political authority, the availability of manpower, therefore the training of men and their health, etc. These elements are too vast to be covered in this article.

Let us also be aware that our countries have been living in a monetary union for several decades. It is a rich and fruitful experience, which it would be better to preserve. I sense that we are at a crossroads and that decisive choices are on the horizon. In all, we must answer three questions: Do we want to remain in the franc zone, making major changes to it in consultation with France?; Do we prefer to leave the franc zone, and if so, how and within what timeframe?; And should we remain in a monetary grouping or not?

These questions have very complex technical aspects. But they are also highly political in nature.

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