What Is The CFA Franc?
There are actually two separate CFA francs in circulation. The first is that of the West AfricanEconomic and Monetary Union (WAEMU) which comprises eight West African countries (Benin,Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. The second is that of the Central African Economic and Monetary Community (CEMAC) which comprises six CentralAfrican countries (Cameroon, Central African Republic, Chad, Congo-Brazzaville, EquatorialGuinea and Gabon), This division corresponds to the pre-colonial AOF (Afrique OccidentaleFrançaise) and the AEF (Afrique Équatoriale Française), with the exception that Guinea-Bissauwas formerly Portuguese and Equatorial Guinea Spanish).Each of these two groups issues its own CFA franc. The WAEMU CFA franc is issued by the
BCEAO (Banque Centrale des Etats de l‟Afrique de l‟Ouest) and the CEMAC CFA franc is issuedby the BEAC (Banque des Etats de l‟Afrique Centrale). These currencies were originally both
pegged at 1
00 CFA for each French franc but, after France joined the European Community‟s
Euro zone at a fixed rate of 6.65957 French francs to one Euro, the CFA rate to the Euro wasfixed at CFA 665,957 to each Euro, maintaining the 100 to 1 ratio. The current plan is to pegthe rate at CFA 1,000 to 1 Euro - a reduction of about 50%.
Who Is Responsible for the CFA Franc?
The monetary policy governing such a diverse aggregation of countries is uncomplicatedbecause it is, in fact, operated by the French Treasury, without reference to the central fiscalauthorities of any of the WAEMU or the CEMAC states. Under the terms of the agreementwhich set up these banks and the CFA the Central Bank of each African country is obliged tokeep at least 65% of its foreign exchange
reserves in an “operations account” held at the
French Treasury, as well as another 20% to cover financial liabilities.The CFA central banks also impose a cap on credit extended to each member country
equivalent to 20% of that country‟s public revenue in
the preceding year. Even though theBEAC and the BCEAO have an overdraft facility with the French Treasury, the drawdowns onthose overdraft facilities are subject to the consent of the French Treasury. The final say is thatof the French Treasury which has invested the foreign reserves of the African countries in itsown name on the Paris Bourse.In short, more than 85% of the foreign reserves of these African countries are deposited in the
“operations accounts” controlled by the French Treasury. The two C
FA banks are African inname, but have no monetary policies of their own. The countries themselves do not know, norare they told, how much of the pool of foreign reserves held by the French Treasury belongs tothem as a group or individually. The earnings of the investment of these funds in the FrenchTreasury pool are supposed to be added to the pool but no accounting is given to either thebanks or the countries of the details of any such changes. The limited group of high officialsin the French Treasur
y who have knowledge of the amounts in the “operations accounts”,
where these funds are invested; whether there is a profit on these investments; are prohibitedfrom disclosing any of this information to the CFA banks or the central banks of the Africanstates.This makes it impossible for African members to regulate their own monetary policies. Themost inefficient and wasteful countries are able to use the foreign reserves of the moreprudent countries without any meaningful intervention by the wealthier and more successfulcountries. Convertibility of the CFA franc into French francs through authorised intermediariesis supported by provision for central-bank overdrafts on these accounts.