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From the Colonial Legacy of CFA Franc to the Promise of the ECO

On December 26th, 1945, the French Government created the CFA Franc and the CFP Franc in their former colonies to facilitate imports from France. The authorities were motivated by the fact that the French Franc was weak compared to the U.S. Dollar after World War II because of the devaluation it underwent. The exchange rate of the CFA was fixed versus the French Franc and this changed twice in 1948 and in 1994 when it was devalued from January 12th, 1994 to December 31st, 1998 in an effort to support African exports. The countries using the West Africa CFA or XOF were eight in number, notably Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. On the other hand, the Central Africa Franc or XAF was being utilized by Cameroon, the Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon.

    CFA

On November 28th, 2017, the French President, His Excellency Emmanuel Macron, while on an official visit to Burkina Faso, gave a speech at the University of Ouagadougou. In front of thousands of students, President Macron accepted questions from the audience at random during which he praised the former leader of the nation, Thomas Sankara and committed to declassifying his file in efforts to shed light on his assassination and the non-implication of France. One student in particular raised the issue of the CFA Franc and the fact that the fourteen nations currently using it as their national currencies had to deposit 50% of foreign exchange reserves via their two regional central banks to the Bank of France to ensure that they could get a fixed rate Euro convertibility. President Macron replied by saying that the CFA was not a “colonial tax” and that it was a fundamental structure of the French-African apparatus. He further stated that all changes regarding these currencies would have to be initiated by African leaders who could therefore shape their own monetary policies in consequence.

On December 21st, 2019, at a joint news conference held at the Petit Palais in Abidjan, Ivory Coast, both President Emmanuel Macron and Alassane Ouattara announced the replacement of the West Africa CFA Franc with a new currency, the ECO in 2020. According to a Wall Street Journal article entitled, “Farewell to the CFA Franc: Macron and Ouattara End a Colonial Relic” dated December 30th, 2019, the following can be noted:

      Emmanuel Macron and Alassane Ouattara

“While other colonial monies met their demise long ago, the CFA Franc survived and thrived. It is convertible across the countries that are members of the CFA Franc monetary zone, with no capital controls existing among members. Paris still plays a pivotal role in setting the zone’s policies. France guarantees the convertibility of the CFA Franc at a fixed rate to the Euro and influences decisions in the zone with an “operation account” at the French treasury. Paris has subsidized the system, but also imposes discipline by controlling member states’ access to credit at the French Treasury. The CFA Franc system has worked well compared with central banking practices in other African countries. Fiscal deficits and sovereign debt levels are lower, reflecting the discipline that the fixed exchange rate imposes on member countries. Inflation and unemployment rates have been lower in CFA countries than in other African economies…So why did the CFA Franc become a hot potato for Mr. Macron? As in the past, colonial politics have entered the arena. This past summer, for example, Luigi Di Maio, Italy’s Foreign Minister and leader of the anti-establishment 5 Star Movement, took direct aim at President Macron. Di Maio attacked France’s foreign policy for, among other things, using the CFA Franc to exploit its former colonies. In those former colonies, some activists and leaders agree with Mr. Di Maio’s assessment. To lower the temperature, Macron decided to remove the West African CFA Franc…These changes are mostly cosmetic. The introduction of the Eco is mainly a strategic move by Messrs Macron and Ouattara. For some two decades, the Economic Community of West African States has debated and planned a new currency, to be called the ECO, for use in a large interstate union. This union would have a natural center of gravity in Nigeria, the region’s largest economy and most populous country. The new, primarily Francophone Eco throws a wrench in the works of the original Nigeria-centric Eco monetary union. Now that one version of the Eco is moving forward, what should be the next move of the countries it covers? The best option would be to transform the Eco Zone into a superior currency-board system. A currency board would issue notes and coins convertible on demand into a foreign anchor currency, the Euro, at a fixed rate of exchange. The board would hold anchor-currency reserves equal to 100% of its monetary liabilities, and it would generate profits from the difference between the interest it earns on its reserve assets and the expense of maintaining its liabilities…”

The Gambian Dalasi was introduced in 1971 to replace the then Gambian Pound. Currently, it circulates in 5, 10, 20, 25, 50, 100 and 200 banknotes as well as .50 Bututs and 1 Dalasi coins. Many are the versions concerning the adherence of The Gambia into the West African Monetary Zone (WAMZ).

    Gambian Dalasi

Furthermore, most experts agree that the introduction of the Eco will have some form of impact on the economies such as The Gambias’. How will the Central Banks address the challenges and what kind of legislations can we foresee to better harmonize the “Economic Independence” of the African nations that were former colonies?

In January 2020, Dr. Isatou Touray, the Vice President of The Gambia, addressed the crowd at the 5th edition of the Taf Africa Global Networking event held in Brufut, The Gambia. The two-day event focused on the need for The Gambia to gain economic independence through employment and other schemes geared towards wealth creation and poverty eradication.

Dr. Touray emphasized that one of the key components of the foundation of this independence would be the private sector and the belief of the people at large in its capacities to create growth. “My Government continues to carve out and adjust to responsive policies and strategies to support greater private sector participation in the domestic economy.”

According to the Vice President, the National Business Council was created to be the platform for the private sector and the government to engage. The aim would be for the government to incept policies, while the private sector attends to the financing needs of the various programmes created within the GIETAF framework. The Innovative Economic Zone is meant to utilize modern technologies for the promotion and enhancement of industrial development while catering to tourism and leisure within the confines of a real estate hub.

     Dr. Isatou Touray, Vice President of The Gambia

The 1960s have seen most African nations gain independence and it would seem as if economic independence is in the making for the “Young Continent” as its mature years are filled with potential.

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