CFA franc
The CFA franc is the name of two currencies, the West African CFA franc, used in eight West African countries, and the Central African CFA franc, used in six Central African countries. Both currencies are guaranteed by the French treasury. Although separate, the two CFA franc currencies have always been at parity and are effectively interchangeable. The ISO currency codes are XAF for the Central African CFA franc and XOF for the West African CFA franc. On 22 December 2019, it was announced that the West African currency would be replaced by an independent currency to be called Eco.
Both CFA francs have a fixed exchange rate to the euro: 100 CFA francs = 1 former French franc = 0.152449 euro; or 1 € = 6.55957 FRF = 655.957 CFA francs exactly.
Usage
CFA francs are used in fourteen countries: twelve nations formerly ruled by France in West and Central Africa, plus Guinea-Bissau, and Equatorial Guinea. These fourteen countries have a combined population of 147.5 million people, and a combined GDP of US$166.6 billion. The ISO currency codes are XAF for the Central African CFA franc and XOF for the West African CFA franc.Evaluation
The currency has been criticized for making economic planning for the developing countries of French West Africa all but impossible since the CFA's value is pegged to the euro. Others disagree and argue that the CFA "helps stabilize the national currencies of Franc Zone member-countries and greatly facilitates the flow of exports and imports between France and the member-countries". The European Union's own assessment of the CFA's link to the euro, carried out in 2008, noted that "benefits from economic integration within each of the two monetary unions of the CFA franc zone, and even more so between them, remained remarkably low" but that "the peg to the French franc and, since 1999, to the euro as exchange rate anchor is usually found to have had favourable effects in the region in terms of macroeconomic stability".Name
Between 1945 and 1958, CFA stood for Colonies françaises d'Afrique ; then for Communauté française d'Afrique between 1958 and the independence of these African countries at the beginning of the 1960s. Since independence, CFA is taken to mean Communauté Financière Africaine, but in actual use, the term can have two meanings.History
Creation
The CFA franc was created on 26 December 1945, along with the CFP franc. The reason for their creation was 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 imports from France. French officials presented the decision as an act of generosity. René Pleven, the French minister of finance, was quoted as saying -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:
- 26 December 1945 to 16 October 1948 - 1 CFA franc = 1.70 FRF. This 0.70 FRF :wikt:premium|premium is the consequence of the creation of the CFA franc, which spared the French African colonies the devaluation of December 1945.
- 17 October 1948 to 31 December 1959 - 1 CFA franc = 2.00 FRF
- 1 January 1960 to 11 January 1994 - 1 CFA franc = 0.02 FRF
- 12 January 1994 to 31 December 1998 - 1 CFA franc = 0.01 FRF
- 1 January 1999 onwards - 100 CFA franc = 0.152449 euro or 1 euro = 655.957 CFA franc.
The value of the CFA franc has been widely criticized as being too high, which many economists believe favours the urban elite of the African countries, who can buy imported manufactured goods cheaply at the expense of farmers who cannot easily export agricultural products. The devaluation of 1994 was an attempt to reduce these imbalances.
Changes in countries using the franc
Over time, the number of countries and territories using the CFA franc has changed as some countries began introducing their own separate currencies. A couple of nations in West Africa have also chosen to adopt the CFA franc since its introduction, despite the fact that they were never French colonies.- 1960: Guinea leaves and begins issuing Guinean francs
- 1962: Mali leaves and begins issuing Malian francs
- 1973: Madagascar leaves and begins issuing its own francs, the Malagasy franc, which ran concurrently with the Malagasy ariary
- 1973: Mauritania leaves, replacing the franc with the Mauritanian ouguiya
- 1974: Saint-Pierre and Miquelon leaves for French franc, which changed later to the Euro
- 1975: Réunion leaves for French franc, which changed later to the Euro
- 1976: Mayotte leaves for French franc, which changed later to the Euro
- 1984: Mali rejoins
- 1985: Equatorial Guinea joins
- 1997: Guinea-Bissau joins
European Monetary Union
- The agreements are unlikely to have any material effect on the monetary and exchange rate policy of the Eurozone
- In their present forms and states of implementation, the agreements are unlikely to present any obstacle to a smooth functioning of economic and monetary union
- Nothing in the agreements can be construed as implying an obligation for the European Central Bank or any national central bank to support the convertibility of the CFA and Comorian francs
- Modifications to the existing agreements will not lead to any obligations for the European Central or any national central bank
- The French Treasury will guarantee the free convertibility at a fixed parity between the euro and the CFA and Comorian francs
- The competent French authorities shall keep the European Commission, the European Central Bank and the Economic and Financial Committee informed about the implementation of the agreements and inform the Committee prior to changes of the parity between the euro and the CFA and Comorian francs
- Any change to the nature or scope of the agreements would require Council approval on the basis of a Commission recommendation and ECB consultation
Reforms
Institutions
There are two different currencies called the CFA franc: the West African CFA franc, and the Central Africa CFA franc. They are distinguished in French by the meaning of the abbreviation CFA. These two CFA francs have the same exchange rate with the euro, and they are both guaranteed by the French treasury, 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 is known in French as the Franc CFA, where CFA stands for Communauté financière d'Afrique or Communauté Financière Africaine. It is issued by the BCEAO, located in Dakar, Senegal, for the eight countries of the UEMOA :Central African
The Central Africa CFA franc is known in French as the Franc CFA, where CFA stands for Coopération financière en Afrique centrale. It is issued by the BEAC, located in Yaoundé, Cameroon, for the six countries of the CEMAC :These six countries have a combined population of 45.0 million people, and a combined GDP of US$88.2 billion.
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.
Criticism
Critics argue that in exchange for the guarantees provided by the French treasury, African countries channel more money to France than they receive in aid. They also argue that they have no say in deciding key monetary policies.Gallery
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