Eight West African countries have agreed to sever a common currency from France. The countries have agreed to change the existing bloc currency to Eco from CFA Franc and sever currency ties to its old colonial master.
The announcement was made by France’s President Emmanuel Macron and Ivory Coast President Alassane Ouattara at a joint news conference at the Petit Palais in Abidjan on December 21, 2019. Ivory Coast is the world’s top cocoa producer and France’s former main colony in West Africa.
The Eight West African Countries in the CFA Franc/Eco
- Benin,
- Burkina Faso,
- Guinea-Bissau,
- Ivory Coast,
- Mali,
- Niger,
- Senegal
- Togo.
All the countries are former French colonies with the exception of Guinea-Bissau.
Background
The CFA franc was initially pegged to the French franc after it was created in 1945. It has been linked to the euro for about two decades. The CFA franc’s value was moored to the euro after its introduction 2o years ago, at a fixed rate of 655.96 CFA francs to one euro.
The French treasury currently holds 50% of the currency’s reserves at the Bank of France however this will be “stopping holding 50 percent of the reserves in the French Treasury” and the “withdrawal of French governance” in any aspect related to the currency.
France has been annually paying a ceiling interest rate of 0.75 percent to member states. The arrangement guarantees unlimited convertibility of CFA francs into euros and facilitates inter-zone transfers.
Macron is claiming it as a “historic reform”, however many see it as further weakening of Franc’s web of influence. Many have seen the CFA Franc an French interference in its former African colonies long after independence. It did not happen overnight, the deal took six months in the making, a French source said.
ECOWAS
The Economic Community of West African States regional bloc, known as ECOWAS. ECOWAS was set up in 1975 and comprises Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo, this is representing a total population of around 385 million.
Eight countries currently use the CFA Franc. Meaning seven other ECOWAS countries have their own currencies, none of them freely convertible.
Commission chief Jean-Claude Kassi Brou said after a summit of regional leaders in the Nigerian capital Abuja “urges member states to continue efforts to meet the convergence criteria”,
The bloc insists it is aiming to have the Eco in place in 2020, but almost none of the 15 countries in the group currently meet criteria to join. Macron said that the “The Eco will see the light of day in 2020.”
Sound Familar? Key demands for entry for Eco
Each country to have:
- A deficit of less than 3 percent of gross domestic product (GDP),
- Inflation of 10 percent or under and
- Debts worth less than 70 percent of GDP.
Risks
Economists say whilst they understand the thinking behind the currency plan they believe it is unrealistic and could even be dangerous for the region’s economies which are dominated by one single country, Nigeria. Nigeria accounts for two-thirds of the region’s economic output.
Nigeria’s Finance Minister Zainab Ahmed told AFP “there’s still more work that we need to do individually to meet the convergence criteria”. Source: AFP
From The TradersCommunity Research Desk