CFA Franc: Emmanuel Macron signals rethink on French-backed Africa currency

French president Emmanuel Macron is this week expected to signal a possible rethink on the French-backed CFA franc used by west and central African states but that critics see as a colonial relic. 

Alassane Ouattara, president of Ivory Coast, the region’s biggest economy, has been a strong defender of the euro-pegged currency, but has come under pressure from regional politicians and activists to challenge the arrangement. Macron is due to meet Ouattara in Abidjan this week and is expected to discuss the concerns. 

Established in 1945, the CFA franc is used in two African monetary zones, one for eight west African countries and the other for six mostly petro-states in central Africa. Since 1999, it has been pegged to the euro, giving the member states monetary stability while supporting trade with Europe. 

In return, the members have to keep half of their foreign reserves in France, on which the French treasury pays 0.75 per cent interest.

A French official sits on the board of the regional central bank in both zones, and the currency is printed by France.

“The optics are so bad I don’t think it is sustainable for France to continue this arrangement,” the adviser said. “There is such a strong demand from African youth to take back their monetary independence.” 

“The political costs may be outweighing the economic gains,” said Carlos Lopes, high representative of the Commission of the African Union, who said the currency’s stability had benefited French exporters and investors. 

“Macron is not espousing the traditional French treasury attitude of keeping the status quo,” he said. “He means what he says when he says he is ready for changes, even radical changes.” 

Defenders of the arrangement point to the stability of the CFA franc and the region’s success in controlling inflation, in contrast with neighbouring countries outside the currency zones.

Being in the monetary union has also helped keep a lid on fiscal indiscipline, said Amaka Anku at Eurasia Group, a political risk consultancy: “You don’t see [the] crazy fiscal slippages in any of the CFA countries you see in, say, Ghana.” 

The French presidency, finance ministry and French central bank declined to make any immediate comment on the currency at what one official called a “delicate moment”. 

But French officials said the decision lay with the African nations that used the system and that Paris was open to any changes proposed, for example to the deposit requirements. Asked whether France would be ready to scrap it altogether, one senior official said: “It’s more a question of evolution.” 

The CFA franc, particularly the obligation for member states to keep half their reserves at France’s central bank, has long provoked resentment. Opponents say it prevents countries from devaluing to counter external shocks and has hampered industrialisation by keeping the exchange rate artificially high. 

This month, Nathalie Yamb, an adviser to an opposition party in Ivory Coast and a Swiss-Cameroonian activist, was deported to Switzerland after she spoke out against the currency. In 2017, Kemi Seba, a French-Beninese activist, was arrested in Senegal after burning a 5,000 CFA franc note in front of hundreds of demonstrators.

Some African heads of state have also become more vocal. Last month, Patrice Talon, president of Benin, defended a proposal to repatriate some of the reserves kept in France. “Psychologically, with regards to the vision of sovereignty and managing your own money, it's not good that this model continues,” he said. 

The eight countries in the west African region already intend to rename the CFA franc the “eco” next year. They hope to eventually replace it with a single west African currency which could include other west African states. 

Laureen Kouassi-Olsson, who runs the Abidjan office of Amethis, an Africa-focused fund manager, said Mr Macron was a “new generation” of French leader, without nostalgia for France’s colonial ties. “His position is that, if the western African heads of state do not want the CFA franc any more, they should be able to exit that currency providing they have the means of doing so.”

But she added that she had concerns about a “monetary revolution” that she likened to the Arab spring, referring to the uprisings in the Middle East and north Africa that started in 2011. “People are arguing from a very romantic and passionate angle,” she said. “We should take a very cool approach to it. A volatile currency is by no means a driver of growth.”

Sources: FT | JIC Media