April 2024 – The CFA franc, short for “Communauté Financière Africaine”, is a currency that was created in 1945 to replace the French franc in fourteen countries in West and Central Africa. It is managed by two central banks: the Banque des États de l’Afrique de l’Ouest (BCEAO) for the countries of the UEMOA (Union Économique et Monétaire Ouest Africaine) and the Banque des États de l’Afrique Centrale (BEAC) for the countries of the CEMAC (Communauté Économique et Monétaire de l’Afrique Centrale).
From a legal point of view, the CFA franc is governed by bilateral agreements between the African countries concerned and France. These agreements set out the procedures for guaranteeing the fixed parity between the CFA franc and the euro (€1 = 656.51 CFA francs), the mechanisms for managing and regulating the currency and the deposit of 50% of foreign exchange reserves with the French Treasury.
However, the CFA franc has been the subject of controversy and criticism that has grown over the past decades, being seen by some as a symbol of the economic dependence of African countries on France and the lack of economic sovereignty of African countries. Supporters of this criticism point out that the franc zone’s monetary policy is largely controlled by France, notably through the guarantee of a fixed parity with the euro.
This criticism has fuelled calls for the CFA franc to be reformed, or even abolished. In December 2019, the presidents of Côte d’Ivoire and France announced an agreement to reform the CFA franc and rename it the “Eco”, while ending the centralisation of foreign exchange reserves with the French Treasury and abolishing the seats granted to France within the BCEAO.
These announcements have been met with mixed reactions from the countries concerned, with some hailing the change as a step towards greater economic autonomy, while others remain sceptical as to the real impact of these changes on the monetary and financial system in Africa (denouncing, for example, the maintenance of the guaranteed fixed parity with the euro).
This reform of the CFA franc has not yet been carried out, and some CEMAC countries have not signed up to it, raising doubts about its long-term viability. As a result, the issue of the CFA franc remains a subject of lively debate in Africa. Opinions differ on the best way to reform the monetary and financial system to promote the economic development and sovereignty of African countries.
Burkina Faso, Niger and Mali have announced their intention to stop using the CFA franc in recent years, in order to preserve their sovereignty. Recently, it was the newly elected President of Senegal, Bassirou Diomaye Faye, who made ending the use of the CFA franc in Senegal one of his campaign themes, putting forward the idea of a single currency for ECOWAS members or Senegal’s own national currency.
The perspectives for future reforms therefore remain uncertain and subject to complex negotiations between African countries, the objective being to defend the economic and monetary sovereignty of African states while preserving investor confidence. In any event, it is certain that the CFA franc in its current configuration will evolve.
Written by Ali Bougrine, Managing Partner of UGGC Africa, and Victor Arnould, Associate of UGGC Avocats and the Africa Desk.