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.
This monetary uncoupling comes at a time of rising anti-French sentiment across the region. French troops who were initially welcomed in Mali in 2013 are now viewed in a far less positive light. French flags now are regularly burned in the streets as the French are increasingly seen to have overstayed their welcome and even to have been engaging in neocolonialism.
The Senegalese development economist Ndongo Samba Sylla sees the CFA franc as a tool that France has used to dominate its former colonies. The currency, he said, “operates as a political tool to control African economies and polities, and also as a device for transferring, with minimal risk, economic surpluses from the African continent to France and Europe. The mechanisms laid during the colonial era remain essentially unchanged.”
Reform of the CFA franc is now underway, but what else must these African countries do to ensure that the mechanisms of colonialism are left well and truly in the past? How can they build a truly independent monetary and fiscal policy while continuing with the process of decolonization?
The first major decision — whether to create independent currencies for each individual country or to keep the monetary union established by the French — has already been made. The eight-member West African economic bloc will remain in place and the currency essentially left intact, albeit with a new name. The more difficult issue is one of unity. Just as the varying degrees of political unity and fiscal coordination in the EU affect the EU’s monetary policy and the stability of its euro currency, unity in West Africa will determine whether the eco succeeds or fails.
The economic trajectories have not been encouraging. While there has been growth, nine of the 14 CFA franc member-countries are classified by the UN as “less developed.” For some, per capita GDP is actually lower now than in the 1970s.
The way forward for these West African nations lies in carefully comporting themselves toward global demand. First, incentives for international manufacturers to import new technology will bring much-needed capital and quality jobs. Next, and just as importantly, embracing digital currency technology could help ease fears among foreign investors of monetary surprises such as devaluations and currency controls. A digital eco operating on a secure blockchain platform would also be a useful currency to serve the interest of mobile workers across the region, benefitting not only francophone Africa.
Indeed, a new financial architecture underpinned by monetary innovations afforded by cryptocurrency principles — free of the possibility that governments might manipulate the currency — will go some way toward assuaging concerns that have plagued African nations’ management of their currencies. This is not to say that it will be easy to accomplish. However, a development that has not been widely appreciated outside the continent has been the rise of fintech. Africa has the talent to figure it out.
Now that these 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. The eco offers an opportunity for their economies to prosper by leapfrogging conventional norms through blockchain technology. They should be bold and break through the paradigm as they have broken with France.
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