Eco, a cure for the FCFA?
Tied to the Euro and supported by France, the FCFA (Franc of the French colonies in Africa) is considered by many African economists as an outmoded currency, as the former French colonies have used it for over fifty, since after gaining independence. France, supporter of the FCFA, is increasingly being criticized by people who accuse her of using the currency as a weapon of neo-colonialism, to the detriment of the economic development and monetary sovereignty of the 14 countries that still use it. Because these countries are unable to set their interest rates, they are obliged to pay in 50% of their foreign exchange reserves into the French treasury in order to benefit from unlimited convertibility of the FCFA with the euro.
Presented as a colonial tax, this money kept in the French treasury according to critics of Paris, is used for the financing of the French debt, something that France denies. Criticism of France’s foreign exchange reserves in the African countries it manages, do not only come from the African continent but also from European neighbours like Italy. Last February, Luigi di Maio, the deputy prime minister of the Italian council, created a diplomatic quarrel between Italy and France, accusing Paris of keeping African countries in poverty through the FCFA, thus encouraging the illegal immigration to European shores. Long before the deputy prime minister of the Italian council, a German economic newspaper accused France of plundering the continent through the FCFA. The newspaper revealed that nearly 440 billion euros are transferred by Africans into the French treasury per year.
The Cameroonian economist Martial Belinga author of the book “Liberate Africa from Monetary Slavery” argues that: The perpetuation of the CFA franc puts African economies and societies in a situation of collective schizophrenia. According to him, an instrument built for the colonial pact helping to transfer African resources to France, then to Europe, cannot serve the needs of local populations demanding a strong, diversified, sophisticated local economy, responding to a significant population growth. The Cameroonian economist also argues that the year 2020 which the Eco becomes effective is symbolic for the future of the continent.
Economic stakes of the Eco
According to the ECOWAS member countries, the common currency will be used to facilitate payments within the countries of the sub-regions, and also to improve trade in the area and reduce transaction costs. The single currency will also enable the Central Bank of West African States to free itself from the trusteeship of the French treasury which holds the foreign exchange reserves of the FCFA and to play its full regulatory role like the European Central Bank. Regarding the management of funds removed from the French treasury, the African Development Bank (AfDB) maintains that the common currency Eco will promote the achievement of joint projects by African countries or even individual projects.
The use of a single currency in all 15 countries will also ease the movement of travellers in member countries without having to resort to numerous transactions. Economist Daniel Ndoye goes further to argue that the new currency will also be an important instrument in the international monetary system that will allow user countries to resist the upheavals associated with currency shocks. All member countries will thus be able to benefit from a typical inflation rate.
However, there are divergent opinions on the fluidity of trade between West African countries that is supposed to guarantee the Eco. For this to be possible, goods should be able to move easily between the countries concerned. West African countries should also have compliant infrastructure to facilitate the delivery of their products. It would also be necessary for them to have diversified economies that allow for the exchange of various products.
But having a large common market is not a won battle because many West African countries import commodities whose costs are controlled by international markets. It will be difficult for them to achieve easy trading through the single currency in such a context. The establishment of the continental free trade zone can nevertheless solve this problem. Nigeria, a major economic power of the continent, which also enjoys a high demographic potential, fears losing its sovereignty by the adoption of this single currency, which is why it has carried out numerous consultations to preserve its interests and protect its vast market. The country led by Muhammadu Buhari, which holds two-thirds of GDP in the West African sub-region, could play the leading role in this new monetary zone according to some experts.
On the side of the countries linked to the FCFA, remain concerned about stability, as they currently benefit from the stability offered by the FCFA supported by the euro, as they have lower inflation rates than those with a national currency. However the opportunity that given to these countries by the Eco to be free from the French tutelage and to regain some level of sovereignty is not to be missed.
Benin, which does not want to miss this opportunity, has taken an important step by announcing the withdrawal of its reserves from the French treasury in the nearest future. According to President Patrice Talon, this money will be managed by the Central Bank of West African States, which will be able to distribute it to other partner central banks around the world. This decision in the opinion of many observers is a decisive step towards the total abandonment of the FCFA established since 1945.
Consisting of fifteen members, the countries of the West African Economic and Monetary Union; Cote d’Ivoire, Togo, Senegal, Benin, Guinea Bissau, Burkina Faso, Niger, Mali and Niger, as well as those of the West African Monetary Zone comprised Nigeria, Liberia, Sierra Leone, The Gambia, Guinea and Ghana, these states wishing to use the Eco as a single currency will have to overcome many obstacles. In order to ensure that the 2020 deadline is not carried forward like the previous ones, it is necessary for the 15 countries to agree on the criteria required for the effective circulation of their currency.
Article from AFRIC Editorial
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