CFA Franc: The Currency of West and Central Africa Explained

The CFA franc is a bit of a mystery to many, but it's actually a widely used currency in West and Central Africa. There are two main types of CFA franc, the West African CFA franc (XOF) and the Central African CFA franc (XAF).

The CFA franc is pegged to the euro, which means its value is tied to the euro's value. This peg was introduced in 1999, and it's been stable ever since. The peg is managed by the French Treasury in collaboration with the Central Banks of the West African States and the Central African States.

The CFA franc is used by 14 countries in West and Central Africa, including Cameroon, the Central African Republic, and Senegal.

The CFA franc has a rich history that spans over 50 years, dating back to 1948 when it was introduced by the French government.

The CFA franc was initially pegged to the French franc at a fixed rate of 1 CFA franc to 1 French franc, which was a deliberate attempt to maintain economic stability in the region.

In 1962, the CFA franc was revalued and pegged to the French franc at a rate of 1 CFA franc to 0.02 French francs, which effectively halved the value of the CFA franc.

The CFA franc has had a significant impact on the economies of the 14 countries that use it, including Benin, Cameroon, the Central African Republic, Chad, the Republic of the Congo, Equatorial Guinea, Gabon, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

The CFA franc has also been criticized for limiting economic growth and development in the region, as it prevents countries from devaluing their currency to make their exports more competitive.

The CFA franc is still widely used today, with over 120 million people using it as their official currency.

The CFA franc is used in 14 countries, with a combined population of 210.4 million people and a combined GDP of $313.7 billion as of 2023.

These countries include 12 nations formerly ruled by France in West and Central Africa, plus Guinea-Bissau and Equatorial Guinea.

The CFA franc was created with a fixed exchange rate versus the French franc, which was changed only twice, in 1948 and in 1994.

Here's a brief overview of the exchange rate changes:

The CFA franc is used in fourteen countries across West and Central Africa, with a combined population of 210.4 million people as of 2023.

These countries include nations formerly ruled by France, such as Mali and Senegal, as well as Guinea-Bissau and Equatorial Guinea, which were formerly colonies of Portugal and Spain respectively.

The CFA franc is used by countries with a combined GDP of US$313.7 billion, a significant economic presence in the region.

This widespread use of the CFA franc is a testament to the historical ties between France and the countries of West and Central Africa.

The exchange rate of the CFA franc has undergone significant changes since its creation. The CFA franc was pegged to the French franc at a fixed rate of 1.70 French francs per CFA franc from 26 December 1945 to 16 October 1948.

This initial rate was a deliberate choice to spare French African colonies the devaluation of December 1945. The CFA franc has followed the French franc's devaluations since then, with some notable exceptions.

The CFA franc was revalued against the French franc in October 1948 to offset the French franc's devaluation versus the US dollar in January 1948. This change occurred on 18 October 1948.

Here's a brief summary of the CFA franc's exchange rate history:

The CFA franc's exchange rate has undergone significant changes since its creation, with some changes being more significant than others.

The CFA franc has faced criticism for its limitations, particularly in West Africa. The currency's value is pegged to the euro, making it difficult for developing countries to set their own monetary policies.

Critics argue that the CFA franc is controlled by the French treasury, with African countries channeling more money to France than they receive in aid. This lack of sovereignty over monetary policies has been a major point of contention.

In 2019, Italian ministers accused France of impoverishing Africa through the CFA franc, and criticism continued from various African organizations.

In December 2019, French President Emmanuel Macron and Ivorian President Alassane Ouattara jointly announced a name change for the CFA franc, which would now be called the eco.

This name change was not just a symbolic gesture, but also a step towards reforming the currency's governance. The decision was made to close the operations account where WAEMU countries had to deposit at least 50% of their foreign exchange reserves with the French Treasury.

However, critics point out that France still retains control over the currency's convertibility, which raises questions about the true nature of this reform. France claims to have removed "political irritants" reminiscent of its neo-colonial domination, but this doesn't address the underlying reality of its control.

The European Union's 2008 assessment noted that the CFA's link to the euro had favourable effects in terms of macroeconomic stability, but also highlighted the lack of economic integration between the two monetary unions. This highlights the complexities of the issue and the need for a more nuanced approach.

In reality, the CFA franc has been criticized for making national monetary policy in developing countries of French West Africa all but impossible, as its value is pegged to the euro. This has led to accusations of monetary imperialism and a lack of sovereignty over monetary policies.

The CFA franc system has some major flaws, and one of them is the rationed credit it provides. The real interest rates incurred by loans in the CFA franc zones can be as high as 15%, making it difficult for many agents to access loans.

Commercial banks in the zone are encouraged to ration credit to avoid accelerating foreign currency outflows. This means that even if businesses or households need credit, they might not get it.

The central banks of the zone, such as the BCEAO and the BEAC, prioritize defending the pegging of the CFA franc to the euro over offering financing conditions that are adapted to the needs of their economies. This is a problem because it can lead to a shortage of foreign currency, which may result in devaluation.

In practice, African states are able to maintain a high level of foreign exchange reserves, with some states holding between 95% and 105% of the required coverage rate.

Fierce wage austerity is a major issue in the West African Economic and Monetary Union (WAEMU), where a zero-budget deficit rule has led to a severe compression of labor remuneration.

This austerity measure has accentuated the rigor of public finances, making it even more difficult for economies with vulnerable structures to develop.

The strong CFA franc, which is essentially a foreign currency, has turned out to be too strong for these economies, hindering their internal expansion and industrialization.

The "solution" to this problem is a destructive depreciation, which is essentially a form of wage austerity, making exports more competitive but at the cost of labor remuneration.

Intra-regional trade in West Africa and Central Africa remains low, around 15% and 10% of total trade respectively, compared to over 60% in the eurozone.

The mechanisms for monetary cooperation with France have not allowed for the development of national production or international integration of these economies, which are still largely specialized in primary sectors of raw materials.

The West African CFA franc is used by eight countries in the region, including Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo. These countries have a combined population of 147.6 million people and a combined GDP of US$199.4 billion.

The West African CFA franc is issued by the BCEAO, located in Dakar, Senegal, and is pegged to the euro, making national monetary policy challenging for these developing countries. The currency has been criticized for being controlled by the French treasury, which has led to accusations of monetary imperialism in Francophone Africa.

Here are the eight countries that use the West African CFA franc:

The West African CFA franc is a widely used currency in the region, issued by the BCEAO (Banque Centrale des États de l'Afrique de l'Ouest) for eight countries in the UEMOA (Union Économique et Monétaire Ouest Africaine). These countries include Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo.

The combined population of these eight countries is approximately 147.6 million people, and their combined GDP is around US$199.4 billion. This makes the West African CFA franc a significant currency in terms of population and economic activity.

Here are the eight countries that use the West African CFA franc:

It's worth noting that the West African CFA franc has a complex history, with some countries having left the currency zone and introduced their own separate currencies.

Central Africa is home to the CFA franc, a currency shared by six countries in the region. The CFA franc is issued by the BEAC in Yaoundé, Cameroon, and is used by Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and Republic of the Congo.

These countries have a combined population of 62.8 million people, as of 2023. The CFA franc was introduced in 1975, with unique obverse designs for each country and a common reverse.

Equatorial Guinea, the only former Spanish colony in the zone, adopted the CFA in 1984. The CFA franc is widely used in the region, with a combined GDP of US$114.3 billion as of 2023.

Here are the six countries that use the CFA franc:

The Central African Republic conflict is a complex issue, but let's focus on the debate to end it. The Economic and Monetary Community of Central Africa (CEMAC) and France recently discussed the CFA franc at a ministerial meeting on April 25, 2023.

France sees the CFA franc's guarantee and convertibility as crucial for regional economic stability. This perception is a key aspect of the debate.

The French government remains open to CEMAC's proposals for reforming monetary cooperation in Central Africa, mirroring a similar process in West Africa. This willingness to adapt is a positive step forward.

The future of the CFA franc is uncertain, with some arguing that plans for its "reform" are nothing more than a rebranding of the status quo.

The CFA franc has been a symbol of West Africa's colonial past, and anticolonial sentiment has driven calls for its replacement. The question is whether this sentiment is being genuinely addressed or merely rebranded.

The plans for reform are fueled by a desire to break free from the colonial legacy, but some critics argue that the underlying power dynamics remain unchanged. The French government still has significant influence over the currency's management.