Thursday . January 02, 2020
Last month, the West Africa Economic and Monetary Union announced it was replacing its currency, the CFA franc, with the “eco.” In this way, the francophone members of the region are seeking to chart a future truly independent of France. To achieve that, however, they may also want to look toward a landscape increasingly defined by blockchain and cryptocurrency technology.
The CFA franc was established in 1945 by Charles de Gaulle as an instrument of monetary and financial control over France’s African colonies. It has been used by Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo for more than seven decades. Six Central African countries — Gabon, Cameroon, Chad, the Central African Republic, the Republic of the Congo and Equatorial Guinea — also use a similar but different version of the CFA franc, but there is no word yet on whether they will follow suit and ditch it.
The question for the former colonies is this: Will a new currency increase prosperity? Or is there yet another step to consider?
The official reason given for doing away with the CFA franc is to encourage new growth and markets, but the move is as much about decolonization, and establishing monetary and financial independence.
In establishing the CFA franc, France set some fairly exacting conditions. After gaining independence, countries using the currency were obliged to keep all their foreign exchange reserves in France. This was reduced to 65 percent in 1965 and to 50 percent in 2005. In return for retaining half the reserves of its former colonies, France pays them 0.75 percent in interest.
The arrangement was highly convenient for postwar France, as it meant the former colonies were effectively providing cheap loans. In addition, France could use the deposits from Africa to help shore up its own currency. The CFA franc, meanwhile, benefited from French backing, which gave it stability.
But times have changed. Today, the arrangement might well be described as a form of monetary ransom. There is no data available for the amount of African reserves held at the French treasury over each of the past 70 years. Yet it is safe to say that France surely benefited from the arrangement. As an indication, Ivory Coast’s reserves alone totaled roughly the equivalent of $6 billion throughout 2018.
Under the new plan, the West African Monetary Union will maintain a peg to the euro during the transition to the eco. But French representatives will no longer sit on the board of its central bank.
Now that the former French colonies have a new currency, the key to putting the past firmly behind is to innovate it in ways that money has not been treated before.