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Association for Free Research and International Cooperation

The death of the CFA Franc is imminent but is the ECO its rebirth?

11.01.2020
By Clifton Ellis  from AFRIC Editorial
When Sékou Touré of Guinea decided to end French colonial rule over his country in 1958 by opting for independence for his country, the French colonial elite in Paris whose pride was hurt decided to embark on scorched earth tactics. They chose to destroy everything in Guinea which represented what they called the “benefits from French colonization”.
Approximately three thousand French left the country, taking all their property and destroying anything that could not be moved: schools, nurseries, public administration buildings were crumbled; cars, books, medicine, research institute instruments, tractors were crushed and sabotaged; horses, cows in the farms were killed, and food in warehouses were burned or poisoned.
The purpose of these acts of spite and retribution were to send a clear message to all other colonies that the consequences for rejecting France would be very high. Fear consequently spread through the African elite, and none after the Guinea events ever found the courage to follow the example of Sékou Touré, whose slogan was "We prefer freedom in poverty to opulence in slavery”, did not live to see his country freed from French domination.

CFA Franc breaches of UN Convention

Under the provisions of Article 52 of the Vienna Convention on the Law of Treaties, it attempts to define the international obligations of sovereign states engaged in making treaties with other nations. One underlying theme of the Vienna Convention is that a treaty is void if a signatory has been coerced into giving its consent. Article 52 specifically renders void any treaty which has been procured by the threat or use of force in violation of the principles of international law embodied in the U.N. Charter. It is the author’s strong belief that given the history of France’s domination over its former colonies, many of the agreements which it (France) made with the newly formed  nations, were made under duress which renders the CFA Franc illegal under Article 52 of the UN Convention.

Given the gravity and repercussions of the decisions taken by African governments with respect to the unfavourable terms they agreed to under the mechanisms of the CFA Franc raise important questions. The first of which is “how is it that governments filled with the pride of freedom from French imperialism could take such decisions against their own nations’ interest and people?” It becomes a highly relevant case to be addressed at the United Nations General Assembly via relevant resolution introduction enabling scrutiny of the terms, conditions and overall circumstances under which such contracts were signed. France, which has a seat at the powerful United Nation Security Council, possesses extra-ordinary ability to defend its elites’ interests no matter how strong or just a case against French exploitation is formulated which politically disadvantages countries who may raise these concerns with the UN. When addressing the history of French coercion and bullying of African states, an entire history of examples is there for all to observe.

It is estimated that France now holds about $500 billions of African countries money in its treasury, and would do anything to prevent a light being shun on this immoral and unethical policy.

These nations have limited access to capital and credit, are allowed by France to access 15% of their own money in any given year. If they need more than that, they have to borrow the extra money from their own 65% from the French Treasury at commercial rates.

Incredible! France imposes a cap on the amount of money the countries can borrow from the reserve at 20% of their public revenue in the preceding year. If the countries need to borrow more than 20% of their own money, France’s Treasury has a veto.  In a moment of rare candour on the issue of the CFA Franc, Jacque Chirac admitted that “We have to be honest, and acknowledge that a big part of the money in our banks come precisely from the exploitation of the African continent.” The international community has for too long left this crime unattended to.

Money vs Currency

French economists like to tout the efficacy and suitability of the CFA Franc for former French African colonies by speaking up the guaranteed convertibility with the Euro (previously was convertibility with the French Franc) and the low inflation rates that can be assured under fiscal demands of the French treasury, however the glaring question is “why would a sovereign state permit themselves to be confined within a monetary and macro-economic straight jacket for the measly return of approximately 0.2% annually on their vast sum of $500 billion investment?” Convertibility is important but convertibility can be accomplished via the FOREX. Inflation must be controlled however too strong a currency can make a country’s exports uncompetitive. It is not an easy task to accomplish fiscal and budgetary competence yet it is no rocket science as African countries like Ghana has been able to demonstrate. Implementation is possible with strong fiscal policies through maintaining appropriate money supply and interest rates management.

There are four characteristics of money:

  • Portability: easily transferred from one person to another, to make exchange of money for products easier
  • Durability: must last when handled and does not break apart when being held as a store of value
  • Divisibility: should be easily divisible into smaller units, so people can use only as much for any transaction
  • Limited Supply: money must be available, but only in limited supply.

There are two requirements of money, it is required to be convertible with other currencies and in exchange for goods and services and it is required to be a store of value. A store of value ensures that value is held intact whether it is today, tomorrow or a long time in the future for exchange according to its weight or volume. Money will always return its value because it is inherently useful.

Fiat currency possesses convertibility but is not a guaranteed store of value in contrast to money that is both convertible and is has an inherent store of value.

Over the last few thousands of years, the gold (and/or silver) standard monetary system has been the most successful for the maintenance of long term economic stability. The limitations which emerge by implementation of the gold standard, that is limited flexibility to expand credit within the economic system at a rate proportionate to a country’s economic growth potential which tends to economic slowdown and recession if not corrected is grossly overstated. The irony is that this is exactly what is required to limit risky behaviour and speculation by bankers and the business community. There are deflationary risks with a the gold standard however in light of the financial profligacy that has mired the financial services and banking sector over the last couple of decades, financial responsibility and accountability via risk minimisation is exactly what is needed at the core of the current financial system which should happen subsequent to a global financial reset against commodity (GOLD).  JP Morgan once said “gold is money, everything else is credit.”

Sovereignty, the road to destiny

France’s position on the UN Security Council gives it an extraordinary amount of leverage over its former colonies in addition to its veto power over CFA Franc countries fiscal policies. How could it be perceivable by African leaders that they could ever be allowed to exercise real independence in such a highly disadvantageous position while in the CFA Franc zone? When has ever the French done anything unless its elites are exclusively benefited? When has the French ever expressed altruism in international relations?”
Compromise to sovereignty is inescapable without fiscal independence and macro-economic control. If an external entity that does not answer to the people of a country is given a seat at the most important table then you have accepted a decrepit system that is bound to yield an outcome contrary to the people’s interests. The real economic and currency power lies with the productive potential of the population not with guarantees given by France, an external entity that has proven itself to be abusive and exploitative. Currency is just an instrument that should be played to the beat of the economic demands of a specific country, not across a zone of countries, unless this currency is backed by a basket of commodities that are in the possession of those countries seeking to be part of that currency zone. Under no circumstances would an ambitious investor which represents his own best interest accept an annual return of 0.2% on an investment of $500 billion, therefore without too much of a stretch of the imagination it could be easily deduced that African leaders accepting these unfavourable terms because of one of several of the following; economic illiterates, are being subjected blackmail, extortion or some form of bribe because nothing else can be sensibly concluded.  None of the aforementioned, including incompetence can be accepted by a rising African population with significant ambitions.

The 45th president of the United States Donald J. Trump’s “American First” economic nationalism offers a paradigm shift and an opportunity for every country to stand for itself economically. Countries now need to strategically modify their approach away from multilateral trade agreement thinking and towards more streamlined bilateral trade agreements in order to maximally benefit economically. In this age, those countries that are able to determine optimum macro-economic policies based on compatible overarching industrial policies will win the economic race to prosperity.

African countries can no longer afford to have external entities dictate to them their future. Africa has no choice now other than envision the future she desires and strategize to accomplish by strategic thinking, planning and execution via shrewd negotiations with its partners starting regionally.  It is only through these steps on the solid basis of independence and sovereignty that the desires of the young people can be met by their selected politicians.

The ECO Fight

Throwing the spotlight on the history of bad decisions made by African leaders with respect to the acceptance of the CFA Franc unfavourable mechanism, there must be awareness from the outset of these failures to ensure that these “mistakes” are not repeated with respect to the ECO. Macron has espoused his support for the ECO and has been pulling a number of former French colonies towards his plan, the French plan. He is of the opinion that the peg between the ECO and the Euro should remain intact; a policy that has strangely been advocated by Ouattara, the president of the Ivory Coast, who himself acknowledged the need to move beyond the CFA. Macron is effectively begging for Africa to capitulate to European superiority because why should Africa allow its currency to be dictated by the ebb and flow of European banker’s whim? Why not have its own independent floating currency befitting of its economic dynamics? Macron’s version of change is more of the same exploitation which benefits the French elite which he represents.

Thankfully however Ghana is completely against the idea of a peg between the ECO and the Euro. Ghana’s president Nana Akufo-Addo has indicated his country’s determination to join the ECO that will replace the France-backed CFA franc as soon as mid 2020 in eight regional countries.  Akufo-Addo has stressed that Ghana is determined to do whatever can be done to enable their qualification and participation as soon as the eco is established because he thinks it will help remove trade and monetary barriers fuelling economic development within the region.

Ghana’s position which opposes keeping the eco pegged to the euro and urging regional authorities to work quickly toward “adopting a flexible exchange rate regime” is the position which enables maximum independences per state but that only works if the commodities that are being put forward to back the ECO is acquirable within all participating member states, enabling each to raise capital directly from their own industries.

By Clifton Ellis  from AFRIC Editorial

Phot Credit: google image/illustration

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