What Is The Future Of The CFA Franc?

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Lately, the protest against the CFA Franc, the legal tender used in 14 African countries (CFA Franc Zone) since 1939, is getting louder. Those in favour argue that the shared currency has helped stabilize prices, with inflation rate averaging 6% in 50 years compared to +20% in Nigeria and Ghana. It has fostered trade Europe, neutralized FX uncertainties, and eased repatriation of funds.

However, those against tag it a colonial relic, pegged to the Euro, guaranteed by France, colonial master to all but few of its users, robbing users their monetary autonomy. A French delegate is a voting member of the periodic monetary policy meeting while the ECB technically dictates the direction of rates. Intraregional trade is weak, real sector lending & industrialization is poor and income growth is low (at 1.5% vs. 2.5% for rest of SSA).

Although whether the region would have fared better without the shared-currency is unclear, recent agitation suggests that the long-term outlook for the CFA Franc is tied to bold reforms. This may include tying the CFA Franc to a basket of currency (e.g. USD, Yuan, Yen), adopting a managed floating exchange rate regime or the adoption of the proposed ECOWAS regional currency, the Eco.

 

United Capital

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