History of Franc CFA

 

 

THE CAMEROON CFA FRANC ZONE

The West African CFA franc (French: franc CFA or simply franc) is the currency of eight independent states in West Africa namely Benin, Burkina Faso, Côte d'Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo. These eight countries have a collective population of 102.5 million people (as of 2013), and a combined GDP of US$78.4 billion (as of 2012). The acronym CFA denotes Communauté Financière d’Afrique (“Financial Community of Africa”) or Communauté Financière Africaine (“African Financial Community”). The currency is distributed  by the BCEAO (Banque Centrale des États de l’Afrique de l’Ouest, “Central Bank of the West African States”), which is  situated in Dakar, Senegal, for the members of the UEMOA (Union Économique et Monétaire Ouest Africaine, “West African Economic and Monetary Union”). The franc is nominally subdivided into 100 centimes but no centime denominations have been issued.

Many central African states use the Central African CFA franc, which is of equal value to the West African CFA franc.  Both CFA Francs currently have a fixed exchange rate equivalent to the euro by the proportion as follows 1 euro: 100 CFA francs = 1 former French (nouveau) franc = 0.152449 euro; or simply 1 euro = 655.957 CFA francs exactly.

Although Central African CFA francs and West African CFA francs have always been at par and have therefore always had the same monetary value against other currencies, they are separate currencies in principle. The West African CFA coins and banknotes are theoretically not accepted in countries using Central African CFA francs, and vice versa. The lasting equality of the two CFA franc currencies is widely assumed.

CFA Francs were used in fourteen countries - twelve of whom were French-ruled African countries, apart from Guinea-Bissau and Equatorial Guinea who were colonized by Portuguese and Spaniards respectively. The ISO currency codes are XAF for the Central African CFA franc where as the code XOF goes for the West African CFA franc.

Name

Between 1945 and 1958, CFA stood for Colonies françaises d’Afrique (“French colonies of Africa”); then for Communauté française d’Afrique (“French Community of Africa”) between 1958 (establishment of the French Fifth Republic) and the independence of these African countries at the beginning of the 1960s. Since independence, CFA is taken to mean Communauté Financière Africaine (African Financial Community), but in actual fact, the term can have two meanings.

History

Creation:

The CFA franc was created along with the CFP franc on 26th December, 1945. This currency was created because of the weakness of the French franc immediately after World War II. When France ratified the Bretton Woods Agreement in December 1945, the French franc was devalued in order to set a fixed exchange rate with the US dollar. New currencies were created in the French colonies to spare them the strong devaluation, thereby facilitating exports to France. French officials brought forth the resolution as an act of generosity. René Pleven, the French minister of finance had said, “In a show of her generosity and selflessness, metropolitan France, did not wish to impose on her far-away daughters the consequences of her own deficiency, thus setting different exchange rates for their currency.”

Exchange rate

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

Exchange rate:

  • From 26th December 1945 to 16th October 1948 – 1 CFA franc = 1.70 FRF (FRF = French franc). This 0.70 FRF premium was as a result of the creation of the CFA franc, which spared the French African colonies devaluation of December 1945 (before December 1945, 1 local franc in these colonies was worth 1 French franc).
  • From 17th October 1948 to 31st December 1959 – 1 CFA franc = 2.00 FRF (the CFA franc had followed the French franc’s devaluation versus the US dollar in January 1948, but on 18th October 1948, the French franc devalued again and this time the CFA franc was revalued against the French franc to offset almost all of this new devaluation of the French franc; after October 1948, the CFA was never revalued again versus the French franc and it followed all the successive devaluations of the French franc)
  • From 1st January 1960 to 11th January 1994 – 1 CFA franc = 0.02 FRF (1st January 1960: the French franc redenominated, with 100 “old” francs becoming 1 “new” franc)
  • From 12th January 1994 to 31st December 1998 – 1 CFA franc = 0.01 FRF (sharp devaluation of the CFA franc to help African exports)
  • From1st January 1999 onwards – 100 CFA franc = 0.152449 euro or 1 euro = 655.957 CFA franc. (1 January 1999: euro replaced FRF at the rate of 6.55957 FRF for 1 euro)

The 1960 and 1999 events were merely changes in the currency used in France. The relative value of the CFA franc versus the French franc / euro changed only in 1948 and 1994.

The value of the CFA franc was widely criticized on the basis that it was too high, which many economists believe favoured the urban elite of the African countries, which could buy imported manufactured goods cheaply at the expense of farmers who could not easily export agricultural products. The devaluation of 1994 was an attempt to reduce these imbalances.

Institutions

Strictly speaking, there were actually two different currencies called the CFA franc: the West African CFA franc (ISO 4217 currency code XOF), and the Central Africa CFA franc (ISO 4217 currency code XAF). They are distinguished in French by the meaning of the abbreviation CFA. These two CFA francs have the same exchange rate with the euro (1 euro = 655.957 XOF = 655.957 XAF), and they are both guaranteed by the French treasury (Trésor public), but the West African CFA franc cannot be used in Central African countries, and the Central Africa CFA franc cannot be used in West African countries.

West African

The West African CFA franc (XOF) is just known in French as the Franc CFA, where CFA stands for Communauté financière d’Afrique ("Financial Community of Africa") or Communauté Financière Africaine (“African Financial Community”). It is issued by the BCEAO (Banque Centrale des États de l’Afrique de l’Ouest, i.e. “Central Bank of the West African States”), located in Dakar, Senegal, for the 8 countries of the UEMOA (Union Économique et Monétaire Ouest Africaine, i.e. “West African Economic and Monetary Union”):

  • Benin
  • Burkina Faso
  • Ivory Coast
  • Guinea-Bissau
  • Mali
  • Niger
  • Senegal
  • Togo

These 8 countries have a combined population of 102.5 million people (as of 2013), and a combined GDP of US$78.4 billion (as of 2012).

Central African

The Central Africa CFA franc (XAF) is known in French as the Franc CFA, where CFA stands for Coopération financière en Afrique centrale (“Financial Cooperation in Central Africa”). It is issued by the BEAC (Banque des États de l'Afrique Centrale, i.e. “Bank of the Central African States”), located in Yaoundé, Cameroon, for the 6 countries of the CEMAC (Communauté Économique et Monétaire de l’Afrique Centrale, i.e. “Economic and Monetary Community of Central Africa”):

  • Cameroon
  • Central African Republic
  • Chad
  • Republic of the Congo
  • Equatorial Guinea
  • Gabon

These 6 countries have a combined population of 45.0 million people (as of 2013), and a combined GDP of US$88.2 billion (as of 2012).

In 1975, Central African CFA banknotes were issued with an obverse unique to each participating country, and common reverse, in a fashion similar to euro coins.

Equatorial Guinea, the only former Spanish colony in the zone, adopted the CFA in 1984.

What is the CFA franc zone?

The CFA franc zone consists of 14 countries in sub-Saharan Africa, each affiliated with one of two monetary unions. Benin, Burkina Faso, Côte D’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo comprise the West African Economic and Monetary Union, or WAEMU, founded in 1994 to build on the foundation of the West African Monetary Union, founded in 1973. The remaining six countries — Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon — comprise the Central African Economic and Monetary Union, or CAEMC.

These two unions maintain the same currency, the CFA franc, which stands for Communauté Financière Africaine (African Financial Community) within WAEMU and Coopération Financière en Afrique Centrale (Financial Cooperation in Central Africa) within CAEMC. WAEMU and CAEMC account for 14 percent of Africa’s population and 12 percent of its gross domestic product (GDP).

All of these countries except Guinea-Bissau and Equatorial Guinea were colonies of France and maintain French as an official language. Guinea-Bissau was ruled by Portugal, and today its official language is Portuguese, while Equatorial Guinea was ruled by Spain, and today both Spanish and French are its official languages.

The three countries featured in the video vary widely in geography, culture, and history. Côte D’Ivoire and Cameroon, for example, have tropical coastlines with beautiful, palm-lined beaches and dense, verdant forests. Mali, which is largely desert, is home to the storied trading city of Tombouctou (Timbuktu) and occupies territory that was once part of the great empires of Mali, Ghana, and Songhai. Although French is the official language in all three countries, each boasts of her linguistic diversity. Nearly 80 percent of Mali’s population, for example, communicates in Bambara, while many Cameroonians speak English as a first language (part of the country was once under British rule), or one of 24 African languages.

Why did the CFA franc zone countries devalue their currency?

Goods produced by the CFA franc zone countries were priced based on the world market when the exchange rate for the CFA franc was artificially high. Partly this resulted in these countries’ economies growing little or not at all during the 1980s and early 1990s. To address this situation, they consulted with one another and with the IMF and France, after which they made the bold decision to devalue the CFA franc by 50 percent. This meant that, as of January 1994, 100 CFA francs equaled 1 French franc, instead of the previous ratio of 50 CFA francs to 1 French franc.

The devaluation aimed to put these countries back on a path of sustainable development by helping regain their competitiveness in the world market. It encouraged exports at the expense of imports because it enabled CFA franc zone countries to sell their products for half as much but required them to buy products from other countries for twice as much. One of its immediate side effects was noted to be a one-time surge in prices, which can lead to inflation. If this occurs, individual purchasing power declines, making it difficult for ordinary citizens to make ends meet. That is why the IMF encourages governments to couple devaluation with sound macroeconomic and structural adjustment policies.

The former includes prudent fiscal and monetary policies and an appropriate exchange rate management. The latter includes trade liberalization, diversification of agriculture, elimination of price controls, reduction of government workforces and spending, and privatization of state-owned industries. These policies often must be implemented simultaneously or in a carefully planned sequence, and thus call for a very high level of cooperative decision making.

How has reform affected economic activity in the CFA franc zone countries?

The economies of the CFA franc zone countries grow 5 percent annually since the reforms were implemented. The agricultural sector, where the majority of the people in Côte D’Ivoire, Cameroon, and Mali are employed, has greatly expanded. Also, more people are now purchasing locally produced vegetables, livestock, and other products. Since these countries’ products have become more competitive in world markets, they have increased their exports and improved trade balances, in the process of revitalizing such industries such as logging and textile manufacturing. Trade within the CFA franc zone has also increased. After an initial surge, inflation has been brought under control, which among other things is helping the poor and making these countries more attractive for investment. Click here to view charts of economic indicators in the CFA franc zone countries, 1990 - 2000.

What role did the IMF play in the economic recovery of the CFA franc zone countries?

Prior to the devaluation, the IMF outlined some policies needed to make it work. Later on, it provided technical advice to the CFA franc zone countries on how to supervise and regulate banks, implement tariff and tax reforms, and rein in government spending. The IMF worked to ensure that substantial funds were allocated to health and education and social safety mechanism were put in place in these countries. It also provided loans, to help mobilize co-financing from bilateral and multilateral institutions, orchestrated debt relief and debt cancellation by a number of countries that worked closely with the World Bank to help each CFA franc zone countries to design an individual adjustment program. IMF loans are intended to temporarily relieve balance of payments problems and support economic reforms. Credits to poor countries are under a special IMF long-term program, the Enhanced Structural Adjustment Facility (ESAF), which provides financing at very low interest rates. This loan program was enhanced and replaced by the Poverty Reduction and Growth Facility in late 1999.

What challenges remain?

In spite of these encouraging results, much remains to be done if the economies of the CFA franc zone countries continue to grow enough to reduce poverty and increase the living standards of their people. In all of these countries, the government ought to consider and focus on providing essential public services instead of being directly involved in production, which the private sector often can do more efficiently. These countries also must allocate more money for infrastructure improvement (e.g., roads, bridges, schools, and utilities) and human resources programs (e.g., health care, education, and job training). In addition, private enterprise in CFA franc zone countries must be expanded, a move that requires governments to convince entrepreneurs that new economic policies will be upheld. Each country also must promote good governance by tackling corruption and inefficiency and making its civil service and judicial systems more open and accountable. In conclusion, all CFA franc zone countries must continue to work together to synergize and mutually benefit with strategic economic ties. Their regional integration is a stepping-stone to their full integration into the global economy.