Conservative reflexes

It is European investors, and international investors more generally, and not the various small and medium-sized domestic companies, who benefit from the protection against exchange loss risk and the ease of fund transfers that this system allows. Are we forgetting here that these zones were originally set up with the aim of providing French entrepreneurs (and adventurers) with outlets that were both secure and profitable within the framework of the colonial empire, within the zones of what was at the time French West Africa (AOF) and French Equatorial Africa (AEF)? Today the fixed exchange rate regime does not even help African countries in the CFA and Comorian franc zones to attract flows of foreign direct investment. These are, for example, significantly less dynamic in Côte d’Ivoire than in Ghana, whose currency is subject to a floating exchange rate regime.

To achieve this imperative of monetary stability, control of price trends is the target priority at the expense of all other development objectives. The Central Bank of West Africa (BCEAO) is a “tropical European Central Bank (ECB),” with stiff conservative reflexes and the (German) obsession with an exclusive fight against inflation. Thus, the monetary absurdity dictated by Frankfurt, then internalized by Paris, is reproduced in sub-Saharan Africa and imposed on its peoples. Yet the explanation for such a low level of consumption in the region is the extreme poverty of considerable masses of Africans. The purchasing power of populations is too weak for local businesses to be able to sell their products, generate sufficient profit margins, and create jobs of quantity.

Despite the situation of near deflation observed in many West African economies, pegging the CFA (and Comorian) francs at a fixed parity with a currency as powerful as the euro harms the competitiveness of exporting companies and handicaps domestic producers. The sale of goods priced in a hard currency deters international customers from buying, while the reduced cost of goods produced abroad provides an incentive for imports.

Fierce wage austerity

Consequently, these developments contribute to worsening the trade balance deficits, but also, and more seriously, hinder the conditions for the development of these economies. The combination of the CFA franc and the dismantling of customs tariffs severs the potential for the internal expansion of agriculture and industrialization (especially in the textiles sector). Obviously, this currency, which is in fact a foreign currency, turns out to be far too strong for economies with such vulnerable structures. Like the “strong franc” strategy formerly led by the Banque de France, that of a “strong CFA franc” currently being led—especially by the BCEAO—leads to an impasse.

The adopted “solution” is the same as in Europe. A substitute for currency devaluation to make exports more competitive is therefore in a particularly destructive depreciation: in this case, fierce wage austerity, compressing all other labor remuneration, and accentuating the rigor of public finances, with a zero-budget deficit rule in the West African Economic and Monetary Union (WAEMU). All this in the extremely difficult context of African societies, where most basic needs are far from being satisfied.

The mechanisms for monetary cooperation with France have in no way allowed for the development of national production or the international integration of these economies, which are still very largely specialized in the primary sectors of raw materials, whether agricultural goods or natural resources. The diversification of the productive structures of these countries is limited. It is therefore understandable why trade relations between members of the franc zone remain modest: exports are primarily oriented toward the countries of the North. Intra-regional trade remains around 15% of total trade in West Africa and 10% in Central Africa (compared to more than 60% in the eurozone).

Countries of the franc zone are amongst the poorest

In recent years, of the top ten intra-African exporting countries, only two are part of one of the franc zones: Togo and Senegal (the others being Swaziland, Namibia, Zimbabwe, Uganda, Djibouti, Lesotho, Kenya, and Malawi). In such conditions, regional integration of these economies turns out to be minimal, even though their heterogeneity is real and there are potential complementarities between them.

What is the use of a single currency shared by these countries if they fundamentally exchange so little with each other? Yet this does not deter the defenders of the CFA franc who advocate for more monetary integration and the promotion of financial markets at the regional level. Proponents of giving up monetary sovereignty are obviously not bothered by the fact that African countries in the franc zones are among the poorest in the world and that their progress in terms of per capita growth in the long term is very modest. More than three-quarters of a century after the establishment of the “modern” system of CFA francs (December 26, 1945), development remains evanescent in all the countries that have adopted it. Thus, of the fifteen countries in the CFA zone, eleven are classed as “least developed,” whereas of the eight that makeup WAEMU, seven remain in this same category today. Among the multiple explanations contributing to this situation, the monetary lockout is one of the most decisive.

How can one not recognize the urgency of calling into question the mission of sub-regional Central Banks (BCEAO and Bank of Central African States—BEAC), which have not set a single objective for accelerating growth and creating jobs? Often emphasized, the “dynamism” of these economies—in the WAEMU much more than in the Central African Economic and Monetary Community (CEMAC)—remains exceeded, however, on average by the results in terms of GDP growth rates of the countries located outside the franc zones. Especially since the recent growth of French-speaking West Africa—until the outbreak of the Covid-19 pandemic—seems to be credited less to the BCEAO than to the rise in global demand, the surge in prices for raw materials, a (temporary) appreciation of the US dollar against the euro and, consequently, against the CFA franc.

Rationed credit and raters that are too high

How can we not admit that we need to make the current operating modalities of the financing systems of these economies more flexible? In the CFA franc zones, the real interest rates incurred by loans remain very high (in some cases reaching 15%), which closes access to loans for many agents, whether companies or households. Faced with the weakness of production and the rigidities of economic structures, getting credit flowing could encourage imports, which are payable in foreign currencies. However, a shortage of foreign currency may lead to devaluation.

To avoid this chain of events, the central banks of the zone encourage the commercial banks to ration credit, for fear that it will accelerate foreign currency outflows. The BCEAO and the BEAC, at all costs, prefer to defend pegging the CFA franc to the euro, rather than offering their economies financing conditions adapted to their needs. The operations account agreements stipulate that the central banks of the two zones must ensure a coverage rate of 20% of the monetary emission. These minimum threshold contractual obligations are more than honored in practice since African states generally constitute foreign exchange reserves that are between 95% and 105%. Even the net foreign assets deposited by the BEAC are proportionally the highest, while the use of these investments undoubtedly seems even more pressing in Central Africa.

The CFA franc is a massive failure on so many levels, to the extent that many observers question the relevance of this system, insisting on the costs incurred by the member states that do not have an autonomous monetary policy. There have even been calls from within the spheres of high finance and the authorities of the IMF suggesting the urgent need to put an end to the fixed parity of the CFA franc vis-à-vis the euro and to adopt a currency that is weaker yet better adapted to domestic production structures. However, freezing prices remains important, both on the French side among the proponents of Françafrique and on the side of the African ruling classes, who are opposed to ending the privileges that the CFA franc confers upon them, particularly by allowing them to import luxury consumer goods cheaply, as well as to invest their assets abroad easily and free of charge.

The Eco currency, but which one?

Nevertheless, there have recently been changes in West Africa. It should be recalled beforehand that, in that part of the continent, one institution oversees WAEMU. We’re talking about the Economic Community of West African States (ECOWAS), which brings together 15 countries: the eight members of WAEMU plus, in order of decreasing economic strength, Nigeria, Ghana, Guinea, Sierra Leone, Liberia, Cape Verde and The Gambia. (Six of these seven countries, none of which use the CFA franc, form the West African Monetary Zone (WAMZ), except for Cape Verde, which chose not to join).

During one of their summit meetings, organized in June 2019 in the Nigerian capital, Abuja, the 15 ECOWAS countries relaunched an already quite old idea: the creation at the regional level of a single currency, called the eco. A monetary institute that was supposed to prepare the tools of a future central bank was set up.

This ambitious project, initially planned (unrealistically) for 2020, also aimed to make the ECOWAS perimeter coincide with those of the two monetary unions whose merger was envisaged: the WAMZ and WAEMU. The latter thus in theory had to abandon the CFA, but the explicit rules of the new exchange rate regime of the eco in relation to the euro and the dollar had been deliberately left in abeyance; the 2020 deadline had itself been pushed back, since the strict convergence criteria (in terms of limits on inflation, budget deficit and public debt) had not been met by any of the economies in this group.

If there are serious difficulties obstructing the path of this monetary regionalization—especially because the convergence of ECOWAS countries has shown its limits, notably in the trade agreements made with the CFA zone—there is every reason to think that a single currency would act as an integrating factor. Especially since trade flows are much more intense in ECOWAS than in WAEMU (for instance between Nigeria or Ghana and their respective French-speaking neighbors). This process would also put an end to an archaic neo-colonial monetary tutelage in West Africa, and perhaps elsewhere on the continent. But such a prospect appeared to be inadmissible to French leaders and their local acolytes who, hand in hand, short-circuited ECOWAS efforts.

A more discreet, yet persistent tutelage

On December 21, 2019, French president Emmanuel Macron and his Ivorian counterpart Alassane Ouattara jointly announced a name change for the CFA franc, which in the eight WAEMU countries will now be called the eco—ust like the name of the currency previously chosen to be the future currency of ECOWAS, even if the two have nothing to do with one another. It was decided to close the operations account on which WAEMU had until then the obligation to deposit with the French Treasury at least 50% of the foreign exchange reserves of the member countries—reserves which can henceforth be managed according to the goodwill of the latter—but also to put an end to the presence of French representatives within the governance of the BCEAO. France says that, as a result, it removed “political irritants,” which were too explicitly reminiscent of its neo-colonial domination. But it forgets to add that it retains the reality of its control, since it is France that will ensure the convertibility of the “new” West African currency.

How, on the one hand, to reassure the financial markets by continuing to oversee a very neoliberal “Pan-Africanism” from Paris? How, on the other hand, to persuade that the right to have its own currency, although effective in The Gambia, would be inappropriate in Senegal, which surrounds it? How to convince that what countries the size of Cape Verde or Mauritius have managed to do—namely manage a national currency—would be beyond the reach of much larger economies, such as those of Côte d’Ivoire or Cameroon? Absurd. The disapproval expressed by Nigeria and Ghana, followed by Liberia and Sierra Leone, although very real and in fact completely justified, remained moderate and contained within the confines of ECOWAS.

At its extraordinary summit in February 2020, the objective of launching a common West African currency was confirmed, but its postponement was endorsed. “Reforming” the CFA franc would appear in this context as a step that is not antagonistic to the implementation of the ECOWAS eco.

In our view, it would be wise, in the fundamental interest of the peoples of the WAEMU countries, to be aware of the trap that is set for them and to firmly reject the “redesign” of the CFA franc—with discreet yet persistent French tutelage. It is more realistic to envisage an exit from the CFA franc zone than to hope “to take France out of the CFA.” The most relevant option for each of the economies concerned is undoubtedly to get out of this anachronistic stranglehold to support the ECOWAS common currency project. The same decision could be taken by the CEMAC countries. Such an orientation might not be the optimal solution, but would certainly be a lesser evil—provided that Africans do not fall into the same trap that the Europeans could not avoid with the eurozone.

The yuan is already in use in Africa

The limits of ECOWAS are clear, particularly because of its insufficient distancing from the neo-liberal line and its risk of being dominated by Nigeria (oil producer), supported by Ghana (gold exporter). Nevertheless, and in a decisive way, a dynamic could thus be instilled, favoring a more authentically pan-African monetary sovereignty—especially if it is joined by other countries, even beyond those of Central Africa. For this new currency to gradually expand its area of influence on the African continent, the most appropriate would be a flexible but controlled exchange rate regime, thanks to the peg on a basket of currencies reflecting, by its composition and weighting, the diversity of foreign trade of member economies.

In this part of the world, which some French leaders consider their “preserve,” things are changing, however. Here, like everywhere else, China’s power is felt. Governments of countries in the CFA zones have recently incurred a lot of debt with China. This is the case, among many other examples, of the Republic of Congo. Outside of the franc zone, several other economies have also moved in this direction. More than half of Eritrea’s external debt is currently owed to China. The latter has become neighboring Ethiopia’s main supplier, like a majority of African countries now, which accumulate trade deficits against it. China built currency exchange agreements with the central bank of South Africa (South African Reserve Bank) when major Chinese banking institutions penetrated the ownership structure of their counterparts in Southern Africa. The Chinese currency, the yuan, is already used as settlement and reserve currency in several economies of the African continent, including Ghana, Zimbabwe and Mauritius.

Since the summer of 2016, Angola has legally accepted the yuan as its currency throughout its territory, which means that its oil revenues no longer depend exclusively on the US dollar. In August 2018, it was Nigeria’s turn to sign an agreement with China to open the possibility of denominating transactions between the two countries in national currency or in yuan to bypass not only the dollar, but also the euro and the pound sterling.

“The last of the Mohicans”

Criticism against the CFA resonates in Russia, and even in the European Union. Despite these major developments, French leaders, who have given up their own currency to adopt a European currency managed by Germany, would like Africa to be “the last of the Mohicans” to retain a “redesigned” franc. Thus, in Paris, monetary authorities with vanishing prerogatives try to make believe that they still have some sort of power in the world. A strange way of exercising, by proxy, monetary sovereignty ceded to those believed to be stronger in Europe by confiscating in Africa that of other peoples imagined as “inferior.”

At the beginning of the 21st century, it would only be ridiculous if this anachronistic French-style backwardness did not contribute, above all, to blocking the conditions for growth and development in 15 African countries that together represent nearly 200 million inhabitants—almost the demographic weight of Brazil, or the populations of France and Russia combined—and some 6.6 million square kilometers—or the equivalent of the combined areas of India and Argentina, not so far from that of Australia.

From then on, the countdown to the post-CFA franc began. A name change, the movement of French adviser-controllers from on-stage to backstage and affixing delicate “distinctive identity markers” on banknotes would not suffice. In terms of currency, symbolism is very important, but it is not everything. It does not take away the cruel reality of domination, exploitation, and widespread misery.

The people of Africa know this, but all their political leaders perhaps have yet to understand it.