Benefits and risks of West Africa’s currency shift

Friday, April 12th, 2024 00:30 | By
Senegal's newly-elected President Bassirou Diomaye Faye waves to supporters from a car after taking an oath of office as president during the inauguration ceremony in Dakar, Senegal April 2, 2024.
Senegal's newly-elected President Bassirou Diomaye Faye waves to supporters from a car after taking an oath of office as president during the inauguration ceremony in Dakar, Senegal April 2, 2024. PHOTO/Reuters

When Senegalese President Bassirou Diomaye Faye said there is no sovereignty if there is no monetary sovereignty, the message sent shocks around the world, particularly in its former colony, France. There is a widespread view that the CFA franc currency, pegged to the euro and used by eight countries of the West Africa Monetary Union, hampers economic development in the region, and there is a need to look at other options.

In February, Burkina Faso’s President Ibrahim Traore expressed his mission to change the Burkinabe currency from the CFA franc. He aimed to create an economic wave in West Africa, aiming to break the shackles of colonial masters.

The CFA Franc, the currency currently used by 14 African nations, including Burkina Faso, has been a source of controversy. Introduced in 1954 as a currency for French colonies in Africa, the CFA Franc has been viewed as a tool of economic and political control by France. By maintaining control over the currency’s convertibility and monetary policy, France has been able to exert significant influence over the economies of these African nations. This has allowed France to manipulate the money supply, interest rates, and currency valuation across francophone Africa from its capital in Paris. The use of the CFA Franc is seen by many as a form of economic slavery that has hindered the development and autonomy of these countries.

In addition to this, France has historically maintained control over the monetary reserves of Francophone Africa by mandating that these nations deposit 100 per cent of their reserves in French banks. This requirement has since been reduced to 50 per cent.  Francophone African countries were prohibited from printing or issuing currency without France’s approval, and were obligated to keep half of their reserves within French institutions.

For decades, the use of CFA Franc by African countries, has been heavily criticized but France has repeatedly defended the currency, saying that it is necessary to promote monetary stability, facilitate economic integration, and enhance overall economic performance. Supporters of the CFA Franc also argue that the currency is a useful buffer against inflation because it is pegged to the euro.

The pegging of the CFA franc to the euro has further exacerbated economic challenges for francophone countries, as their exports are predominantly priced and traded in US dollars. This has rendered their commodity-based products uncompetitive in the global market. This system has hindered the economic autonomy of francophone Africa, perpetuating a neocolonial framework that prioritizes foreign companies over local enterprises.

Transition from CFA franc to the new currency, Eco, is a significant shift in governance, with France relinquishing control over the management of the currency. The implications of this change remain uncertain, prompting a critical examination of whether it will ultimately benefit or harm these nations.

The decision for West African countries to transition from the CFA franc to the Eco can have significant implications, both positive and negative. This change has the potential to enhance economic independence and stability, thereby fostering increased trade and attracting foreign investment. However, it also presents challenges such as inflation, currency devaluation, and economic uncertainty.

The transition process must be carefully managed. The adoption of the Eco could also foster greater political cooperation and integration among West African countries, fostering closer ties in areas such as trade agreements, infrastructure development, and regional security. It is crucial to address potential disparities in economic development and ensure equitable benefits for all member states before the adoption. By working together and implementing sound economic policies, West African countries can harness the potential benefits of the Eco while mitigating any risks.

As East Africans we will learn from Eco before we hopefully introduce ‘Sheafra’ the touted East African currency.

—The writer is an Innovations Evangelist and a PhD Candidate —[email protected]

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