Reflections on the FCFA and the ECO

The announcement by Ivorian President Alassane Ouattara (with French President Emmanuel Macron by his side) that the eight countries of UEMOA have decided to drop the CFA Franc (FCFA) in favour of the proposed ECOWAS common currency, the Eco, has elicited bewilderment, controversy and excitement in equal measure. Indeed African nationalists and intellectuals have long considered the FCFA as one of the most blatant symbols of France’s neo-colonial stranglehold on its former colonies in West and central Africa. (Indeed FCFA originally stood for Franc des colonies françaises d’Afrique.)

Three aspects were considered particularly galling: 1) The CFA countries were obliged to deposit at least 50 percent of their foreign exchange reserves with the French central bank. In the past year alone, Francophone countries transferred some EUR 19 billion to the French treasury through this mechanism. 2) The French Ministry of Finance exercised effective control over the currency by appointing members to the board of the nominally independent Central Bank of West Africa, (BCEAO). In Reality, the Bank of France, headquartered in Paris, effectively controlled the bank and, through it, the currency. 3) By relinquishing control of their currency, Francophone countries deprived themselves of the possibility of using monetary policy as a tool of macroeconomic management. This is an issue both of sovereignty and development.

Given these obvious neo-colonialist traits how did the FCFA survive all these decades and why did African countries continue to embrace it even after independence in the 60s? The answer may be found in a fourth feature of the currency, its stability and convertibility. From its birth in 1945, the FCFA was pegged to the French franc, until 1999, when it became tied to the Euro, after France joined the Euro zone.

The stability and convertibility of the FCFA, assured by its link to the French Franc and the Euro, have been the poison pill that hooked African countries onto their neo-colonial currency. As they have watched the sovereign currencies of their neighbours (Nigeria, Ghana, Zaire/Congo, Liberia, etc) crumble in value and be shunned on global currency exchanges, many must have secretly sighed, “Thank God for the FCFA”. Indeed Francophone countries in West and Central Africa have profited from the weaker currencies of their neighbours, whose citizens have continued to transfer or smuggle export produce, precious minerals, even human capital in exchange for the FCFA.

So, what has all this got to do with the Eco? And why the brouhaha over Francophone West African countries ditching the FCFA for the Eco? From the inception of ECOWAS, a single currency has been viewed as one of the key pillars of the community, along with free movement and the right of settlement. The importance of a single currency in promoting regional trade and integration is acknowledged by all. Yet the attainment of a single currency has remained elusive – ECOWAS’ own holy grail.

Two main reasons account for this. The first was the inability of most non-FCFA countries to meet the convergence criteria established by the West African Monetary Union (WAMU). These are: single digit inflation; fiscal deficit below 4 percent; gross foreign exchange reserves sufficient to cover three months’ worth of imports; and central bank deficit-financing of no more than 10% of tax revenues.
The second, and arguably weightier, reason was the status of the FCFA within the proposed common currency. It was considered highly improbable that Francophone countries would ditch the FCFA in order to join the Eco. The entanglement of the FCFA with the French treasury added to the complexity.

That is why the announcement by Presidents Ouattara (as current Chairman of UEMOA) and Macron is so significant. First, it addresses the first three neo-colonialist traits of the FCFA and technically transfers sovereign control from France to the UEMOA countries. Thus, the decision to join the Eco now becomes an African political and economic choice, not the prerogative of the French Ministry of Finance and Central Bank. And, apparently, those countries have now chosen to adopt the Eco.

However, the Ouattara-Macron announcement raises as many questions as it answers. First, there is the question of the convertibility of the Eco and the suggestion by UEMOA (through Ouattara) that the new currency be tied to the Euro. Surely, the eight UEMOA countries cannot decide such an important issue on behalf of the 14 countries that constitute ECOWAS, including sub-regional giants Nigeria and Ghana. One can only presume this is a negotiating position and, possibly, an attempt by France to continue to exercise some leverage over the new currency. That would be presumptuous and preposterous.

The well calibrated language of the 21st December communique of the 56th ECOWAS summit that merely “takes note of the major changes underway in UEMOA” makes this clear. The statement goes further to underline that these changes should facilitate the integration of UEMOA into the single currency. In other words, the Eco cannot be hijacked by a segment of ECOWAS. The Community alone and as a whole will determine path to the full adoption of the Eco. The 28th December statement issued by the Ghana government, while welcoming UEMOA’s decision and recommitting Ghana to the adoption of the Eco, also underlines the ECOWAS authorities’ decision to adopt a flexible exchange rate mechanism for the Eco.

So, bottom line: the decision by UEMOA to replace the FCFA with the Eco is historic. While the manner of the announcement may have been somewhat clumsy, it certainly removes a major obstacle to the implementation of the ECOWAS common currency. ECOWAS leaders must now pursue two priorities to attain this holy grail: encourage all countries to hasten to meet the convergence criteria, and assert West Africa’s sovereignty by adopting an exchange rate mechanism that purges it from all vestiges of neo-colonialism.