Association for Free Research and International Cooperation

Is the eco adopted by UEMOA the one thought by ECOWAS?

29.12.2019
Article from AFRIC Editorial
The enthusiasm of those who toasted a little too fast at the death of the FCFA in West Africa has been cooled off. Reasons being that, the currency reform announced on December 21, by Ivorian President, Alassane Ouattara and his French counterpart in Abidjan, is far from being unanimous in the ECOWAS region where it is the subject of an avalanche of criticism and even rejection by some opinions. Presented by some as a historic step forward in relations between France and Africa and by others as "smoke and mirrors", the Eco, which will come into effect in eight francophone West African countries by July 2020, is the result of a reform of the FCFA demanded by the French president and the heads of state of the WAEMU region.

According to the French leader, the three main points of this reform are to remove Paris from the decision-making bodies of the West African Monetary Union and to restore the post-colonial relationship between France and its former colonies in Africa. Created 74 years ago under the name of “Franc des Colonies Françaises d’Afrique”, the FCFA hence changes its name to Eco. Beyond the change of acronym, does the FCFA really disappear to make way for a new currency?

WAEMU’s ECO

Eco is an old dream that has been nurtured by ECOWAS since its creation in 1975. Very often put on the agenda by the leaders of the sub-regional body, this common currency has two major objectives including the improvement of trade between member states and the strengthening of their economies at the regional level.

According to the final communiqué released by the chairman of the conference, the monetary cooperation agreements binding France and the eight WAEMU member countries were reviewed, which led to three major changes, namely:

  • The abandonment of the name “CFA Franc” for Eco.
  • The closure of the famous operations account housed at the Banque de France, a source of much criticism. This measure puts an end to the compulsory storage of foreign exchange reserves of WAEMU States (50% minimum) in the French treasury. The resources in the said account will be transferred to the Central Bank of West African States (BCEAO). Moreover, some sources claim that in 2015, nearly 19 billion euros would have been transferred by African countries to this famous account.
  • The third measure is the exclusion of the representatives of Paris, which has the right of veto on the BCEAO board of directors.

If these measures are applauded and presented by some opinion as breaking the ties with Paris, the two key pillars of the FCFA that are maintained in the new currency are problematic. The first is the fixed exchange rate to the euro, which remains the same, and the second is the guarantee provided by France. According to Prof. Ousseni Illy, professor-researcher at the University Ouaga 2 in Burkina Faso, in view of the characteristics of this new currency, there are reasons to wonder whether this “Eco” adopted by WAEMU is the same one envisaged by ECOWAS?

ECOWAS takes action “diplomatically”

While the eight African countries belonging to the French square were not fully consulted before the adoption of the new Eco currency, which is a common initiative, ECOWAS, which remains cautious, merely took diplomatic note of the creation of this currency which will be used by the WAEMU countries. The final communiqué of the summit of Heads of State of the organization held on 21 December in Abuja clearly states this in the following terms: “With regard to the issue of the single ECOWAS currency, after hearing the presentation by His Excellency Alassane Ouattara, President of the Assembly of Heads of State and Government of the WAEMU, the Assembly took note of the important transformations underway at the level of the WAEMU. This reform of the WAEMU monetary zone will facilitate its integration into the ECOWAS monetary zone”.

ECOWAS, which does not want to let the efforts made so far for the creation of the new sub-regional currency and its use in 2020 go in vain, urges its member states to continue the in this light, which consists of respecting the convergence criteria which only Togo respects at the moment. In its final declaration, the use of the WAEMU’s version of Eco was vague. According to many experts, the organization remains strongly divided on the new reforms undertaken by Emmanuel Macron and the eight French-speaking West African countries.

WAEMU’s version of the Eco is different from the ECOWAS version, which makes it difficult for other countries to join the group and adopt measures for which they were not consulted. While they take into account the new currency, their adherence to it is not on the agenda for the time being. They prefer to observe its evolution before taking a decision on the matter. At the forefront of the sceptics is Nigeria, an economic giant which accounts for about 70% of the GDP of the West African sub-region.

Nigeria Remains Wary

Nigeria’s reaction was eagerly awaited following the decision of the eight WAEMU countries to abandon the use of FCFA for an Eco with a fixed parity pegged to the Euro and guaranteed by France, pending the introduction of the new currency wanted by ECOWAS. If the Central Bank of West African States in a press release maintains that WAEMU’s version of Eco will allow the eight countries of the former French colonies to prepare for the use of the of ECOWAS’ Eco, President Buhari was satisfied with a tweet to greet the will of Paris not to stop the evolution of the Eco. Nigeria has always wanted that the common currency be detached from the French treasury. Buhari sees the abandonment of the FCFA announced by Macron and Ouattara as significant step in this regard. Abuja remains convinced that steps have been taken by the WAEMU countries to respect the convergence criteria before the adoption of the Eco as a common currency. These criteria are supposed to guarantee international convertibility for the new currency, imply budgetary discipline that takes into account respect for a budget deficit of less than 03%, inflation of less than 10% and a debt of less than 70% of GDP.  Since Togo is the only country meeting these criteria, the other countries according to Abuja must get to work so that the new sub-regional currency can see the light of day in 2020 as planned.

Nigeria’s resistance also concerns the role of France, which remains the guarantor of WAEMU’s version the Eco.  The Nigerian, Bismarck Rewane, CEO of the Financial Derivatives firm, who insists on the need for the Eco to be convertible, hopes that the guarantee provided for the time being by Paris is not unlimited and that the Eco pegged to the Euro adopted by the WAEMU countries is in fact only a transitional currency that should lead to the introduction of the real Eco sought for by ECOWAS.

The FCFA is not dead

The new currency, which is to replace the FCFA by 2020, only concerns the eight countries of the West African Economic and Monetary Union (WAEMU) Togo, Senegal, Niger, Mali, Guinea-Bissau, Côte d’Ivoire, Burkina Faso and Benin. Central African countries are not concerned. We cannot therefore speak of the “death of the FCFA” since this currency will continue to circulate in Cameroon, Central African Republic, Congo, Gabon, Equatorial Guinea and Chad. There are other elements that lead us to express reservations about this case.

Some details suggest that it is only a change of acronym. Through Eco, the CFA Franc, supposedly abandoned by the French-speaking countries of West Africa, is just changing its name while maintaining certain strong links with France, which continues to have a certain degree control.  With France as the guarantor of Eco, the French-speaking countries of West Africa remain independent of the support of Paris which ensures them convertibility with the EURO. The bases of the new currency set by Côte d’Ivoire and France raise the question of the credibility of this divorce because the Ivorian president has always presented himself as a fervent defender of the FCFA which he has often confidently described as “solid currency”. The place of manufacture of this currency also remains one of the unsolved aspects. Everything thus suggests that like the FCFA which is made in France, the Eco of the WAEMU will come from France and the manufacturing costs will be paid by African countries.

The fixed parity to the euro remains maintained with the Eco (1 euro = 655 CFA Francs). How can we be happy when we know that the pegging of the FCFA to a strong currency such as the Euro is a hindrance to the development of African countries that are unable to offer competitive prices on export markets?

By receiving 50% of the foreign exchange reserves of African countries in the franc zone in the famous operations account, France promised to support the fixed parity of the FCFA to the euro. While these foreign exchange reserves will be transferred to the BCEAO, according to the announcement made by Macron, it is important to ask whether African countries will be insured free of charge by France from now on. The decision to let go of the FCFA to give rise to the Eco, is also for the French president a response to the cry of the African youth regarding the dictatorship of Paris on its former colonies in Africa. This is a blow that has given rise to the outpouring of a feeling of rejection of France on the continent. “I can see your youth reproaching us for a relationship that it considers post-colonial. So let’s break the ties.”

Because the currency issue is still linked to sovereignty, for many Africans, the three major technical reforms mentioned by Alassane Ouattara are not able to calm the criticism and anger of those who advocate a total end to the monetary servitude that African countries are victims of through the FCFA. For these people, this system of looting simply need to come to an end.

Article from AFRIC Editorial

Photo Credit : Google image/illustration

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