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Leaders from eight West African countries met Friday in Abidjan, Côte d Ivoire, to discuss the abandonment of their currency – the CFA franc – for the " ECO ", a new currency targeted by the leaders of ECOWAS, the Economic Community of 15 States of West Africa. launch next year.
What is the CFA franc?
Created by France in 1945, the franc "CFA" has been indexed on the French franc and is currently supported by the euro. CFA originally represented "French Colonies of Africa", then "French Community of Africa".
Which countries currently use the CFA franc?
It is used in two currency areas, one in West Africa and the other in Central Africa. The CFA franc of West Africa is used by Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. The CFA franc of Central Africa is used by Cameroon, the Central African Republic, the Republic of Congo, Gabon, Equatorial Guinea and Chad.
Although the two currencies are technically separate, they are essentially parity and interchangeable. One euro ($ 0.89) can buy about 656 CFA francs – from West or Central Africa.
Why abandon the CFA franc?
Some critics view money as a tool of the colonial era that continues to encroach on the sovereignty of African states. Last year, seven artists from 10 different countries published the song "7 minutes against the CFA franc" in order to elicit widespread popular support for dumping the currency.
How does this interfere with sovereignty?
The CFA franc limits monetary sovereignty. France guarantees the value of the CFA franc and, in return, the countries that use it are required to keep 50% of their foreign exchange reserves with the French Treasury.
BSince the exchange rate between the CFA franc and the euro is fixed, the central banks of the two CFA franc zones must follow the monetary policies of the European Central Bank (ECB) in order to maintain the anchoring. In simple terms, the ECB actually sets interest rates for countries that use the CFA franc.
Is there an advantage to keeping the CFA franc?
Because the CFA franc is strongly tied to the euro, its supporters believe that it provides stability to the countries that use it and that it helps to create opportunities for economic growth.
What are the disadvantages of keeping it?
Critics say that because the CFA franc is tied to the euro – which is relatively strong – goods produced by countries in CFA francs are less competitive than goods produced by countries whose currency is cheaper.
What is the advantage of replacing the CFA franc with the ECO?
ECO proponents say it will help boost trade, reduce transaction costs and facilitate payments in the 15 ECOWAS member countries, which overlap widely, but not entirely, with the franc zone. CFA of West Africa.
Could the CEO be adopted soon?
The introduction of a single currency for ECOWAS has been postponed several times over the years. ECOWAS plans to launch the ECO in 2020, but it is doubtful that the 15 bloc countries can all meet the criteria for adoption of the new currency by then. It is also unclear whether the bloc will quickly have the institutional structures in place to manage a common currency.
Will the new currency succeed?
Some fear that Nigeria, the largest economy of ECOWAS, will dominate the ECO. It is also questionable to what extent the ECO would stimulate trade. Ken Opalo, an badistant professor at Georgetown University, told Al Jazeera that, if the ECO gave francophone states an alternative to the CFA franc, "insufficient domestic trade would create serious problems for monetary authorities in the bloc" .
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