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Paradigm shift: The Hope for New ‘Eco’

The currency has been criticized for making economic planning in the developing countries of French West Africa all but impossible since the CFA’s (Eco’s) value is pegged to the euro (whose monetary policy is set by the European Central Bank). Others disagree and argue that the CFA franc (Eco) help to stabilize the national currencies of Franc Zone member-countries and greatly facilitates the flow of exports and imports between France and the member-countries.

merchant gives change of an old 500 CFA Franc note (approximately 76 Euro cents) and a new 500 CFA Franc coin. Photography: EPA/Nic Bothma

 

The Eco continues as the currency in the Central African monetary zone for now, but the West African heads of state, hope ultimately to create a monetary union with a single currency across all the states that currently use the Eco. Analysts say Eco, a currency tied to the euro and historically rooted in French colonial rule, raise a host of thorny problems.

Eight countries use the euro-pegged Eco, which enjoys unlimited convertibility with the euro. The priority of African economies is not the fight against inflation, they need investment and jobs. The currency link to Euro provides an important measure of financial stability, but is politically sensitive in countries that have been independent from France for nearly six decades.

Pan-African activist Kémi Séba ignited a tinderbox of anti-French anger when he set fire to a 5,000 CFA franc banknote (worth around $8.43) in 2017

As ECOWAS includes the eight members of West African Monetary Union (WAMU), the Eco would supplant the CFA franc (Eco) for those countries. But the prospects of earlier changes in the region’s currency dramatically surfaced on 14th November when Benin leader Patrice Talon said the WAMU states planned to pull their reserves from the Bank of France.

Expert says withdrawing exchange reserves (from French supervision) would call into question one of the pillars of the franc zone. If the guarantee is scrapped, this would open the door to questioning the fixing rate, which reduces the exchange risk for investors and exporters which is a great benefit. There are other factors in the debate, beyond the management of monetary, economic policies and hanging the location of where reserves are held is above all a political and symbolic issue.

By severing the chain to the euro, West African countries would then be able to link the Eco to a basket of currencies, which would better suit the region’s exporters. The region needs to move to fixing it against a basket of currencies, the Euro, the dollar, the Yuan, which corresponds to Africa’s trade partners Europe, the United States and China.

The system is facing questions about France’s ongoing role in Africa. The artificially high exchange rate of the CFA franc (Eco) caused economic stagnation among the countries in the CFA franc (Eco) zone with opponents saying it prevents countries from devaluing to counter external shocks and from managing inflation, which has also hampered trade.Mamadou Koulibaly, a former finance minister and a candidate in Ivory Coast’s 2020 presidential election said ” in an increasingly global market, where the Ivory Coast trades with a range of countries, including China, Russia and the U.S.

President Patrice Talon of Benin Republic made a bold statement in November called West Africa’s Francophone nations to move some reserves from France in order to have more control over the management of their currency with regards to the vision of sovereignty and managing your own money, it’s not good that this model continues.

The two monetary unions in the Eco zone currently consist of 14 sub-Saharan African nations. The West African Economic and Monetary Union, founded in 1994, contains Benin, Burkina Faso, Cote D’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. The Central African Economic and Monetary Union consists of Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon.

The Economic Benefits of Eco

A litre of petrol is priced at 600 CFA francs ($1.00) at a Shell gas station in Abidjan, Cote d’Ivoire, February 1, 2016. REUTERS/Joe Penney

The Eco is used in 14 African countries with a combined population of about 150 million and $235 billion of gross domestic product. Benin, Burkina Faso, Cote D’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo are worth a collective 58.966 billion CFA Francs, that is, $102.2 billion (the equivalent of 22% of Nigeria’s GDP). Cote D’Ivoire, which represents 35.2% of the economy of the zone.

The International Monetary Fund said the economies of the Eco zone countries have grown 5 percent annually since reforms were implemented. The agricultural sector where the majority of the people in Cote D’Ivoire, Cameroon, and Mali are employed has greatly expanded.

Also, more people are now purchasing locally produced vegetables, livestock, and other products. Since these countries’ products have become more competitive in world markets, they have increased their exports and improved trade balances, in the process revitalizing such industries as logging and textile manufacturing. Trade within the Eco zone has also increased. After an initial surge, inflation has been brought under control, which, among other things is helping the poor and making these countries more attractive for investment.

Maintaining The Balance

Susafrica.com, 2019

Post-independence the CFA franc (Eco) was redesigned: for the eight members of the West African Economic and Monetary Union (WAEMU) Benin, Burkina Faso, Cote DIvoire, Guinea-Bissau, Mali, Niger, Senegal and Togo it became the African Financial Community franc; for the six members of the Central African Economic and Monetary Community (CAEMC) Cameroon, Central African Republic, Republic of the Congo, Gabon, Equatorial Guinea and Chad the Central African Financial Cooperation franc. The two zones possess economies of equal size (each representing 11 per cent of GDP in sub-Saharan Africa).

Using the IMF recommended model, much remains to be done if the economies of the Eco zone countries are to continue to grow enough to reduce poverty and increase the living standards of their people.

  • The government’s of Eco zone  member countries should rethink it focuses on providing essential public services instead of being directly involved in production, which the private sector often can do more efficiently.
  • These countries also must allocate more money for infrastructure improvement (e.g., roads, bridges, schools, and utilities) and human resources programs (e.g., health care, education, and job training).
  • Private enterprise in Eco zone countries must be expanded, a move that requires governments to convince entrepreneurs that new economic policies will be upheld.
  • Each country also must promote good governance by tackling corruption and inefficiency and making its civil service and judicial systems more open and accountable.
  • Finally, all Eco zone countries must continue to work together to forge strong and mutually beneficial economic ties. Their regional integration is a stepping-stone to their full integration into the global economy.

 

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