Towards a single currency: from CFA franc to the Eco
One important step forwards towards a single currency was made on 21 December 2019 when Ivorian President Alassane Ouattara – who is also the current president of the UEMOA – and French President Emmanuel Macron announced plans to reform the CFA franc, the common currency of the eight UEMOA member countries. Some 134 million people in Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo use the CFA franc. Under the reform plan: the CFA franc will be renamed the “Eco”; France will withdraw from all governance bodies; and the Bank of France will no longer hold half of the foreign reserves. However, the Eco will continue to be pegged to the Euro and France will retain, for the time being, its role as its financial guarantor.
Created in 1945 under the name “Franc des colonies françaises d’Afrique” (Franc of the French colonies in Africa) and transformed in 1958 into the “Franc de la Communauté financière africaine” (Franc of the African financial community), the name change of the common currency is highly symbolic. The reform plan aims to reduce the region’s financial ties with the former colonial power.
However, many African economists argue that there should no longer be any monetary co-operation agreements between France and African countries. “By maintaining this guarantee, until the introduction of the Eco, we want to avoid speculation and capital flight,” explained Alassane Ouattara. Other critical voices say that the fixed exchange rate with the euro will make West African exports less competitive.
At the regional level, the reform of the UEMOA monetary zone will facilitate its integration into the planned future ECOWAS monetary zone with a single currency, which was already mapped out in 2003. During the ECOWAS Authority’s 56th Ordinary Session of Heads of State and Government on 21 December 2019 in Abuja, West African leaders took measures to accelerate the establishment of the ECOWAS Monetary Union in 2020. They adopted the Eco symbol for the ECOWAS single currency, and the name of the ECOWAS Central Bank: Central Bank of West Africa (CBWA). However, West African economies still struggle to comply with the convergence criteria, notably ensuring a budget deficit of less than 3%, an inflation rate of less than 10% and a debt burden of less than 70% of the national GDP. The introduction of a single currency has already been postponed many times.
The reform of the CFA franc is one important building block for the new ECOWAS-wide currency and the key question remains whether the Anglophone economies will join the new currency in the near future. While the economic giant Nigeria asked for time to analyse the implications of the CFA franc reform, Ghana, the region’s second-largest economy, already confirmed its support. “This is a welcome decision, which Ghana warmly applauds. […] We, in Ghana, are determined to do whatever we can to enable us join the member states of UEMOA, soon, in the use of the Eco, as, we believe, it will help remove trade and monetary barriers, reduce transaction costs, boost economic activity, and raise the living standards of our people,” according to a government press release.
At the international level, the African Development Bank and many other financial partners commended the reform of the CFA franc. The IMF called it “a key step in the modernisation of long-standing arrangements” between the UEMOA area and France.