The move to rename the CFA franc the 'eco' and lessen France's economic influence over the Waemu bloc has been broadly welcomed. But what will the repercussions be for the rest of west Africa? John Everington investigates. 


Changes to international currency mechanisms tend to be slow, drawn out affairs, dominated by endless deliberations behind closed doors, with any alterations usually flagged up well in advance.

While discontent at west Africa’s CFA franc – the French-sponsored currency used by the eight states of the West African Economic and Monetary Union (Waemu) – had been growing over the past years, significant changes to the regime were not anticipated ahead of French president Emmanuel Macron’s visit to Côte d’Ivoire in December 2019.

“We doubt that the French-backed system will be abandoned anytime soon,” one analyst wrote on December 21. “Any change would come after a long period of negotiations.”

The very next day, however, Mr Macron and his Côte d’Ivoirian counterpart, Alassane Ouattara, made the startling announcement that the CFA franc would in effect be replaced in 2020 by a new currency, the eco, with the new name shedding perceived references to the currency’s origins as a product of the French colonial era.

In keeping with such a move is the dropping of the requirement that the BCEAO, the bloc’s central bank, deposit at least 50% of its international reserves in the French treasury. France will no longer have a representative on the BCEAO’s board of directors, monetary policy or Waemu’s banking commission.

“I wanted to engage France in a historic and ambitious reform of the co-operation between Waemu and our country,” Mr Macron said at the announcement. “With the reform of the CFA franc, we are taking a big step to write a new page in our relationship with Africa.”

A historic move?

Yet while Mr Ouattara hailed the move as a “historic day for west Africa”, analysts have been quick to point out that the move will have virtually no economic impact – for better or for worse – on the finances of Waemu member states or their approximately 125 million inhabitants, nor on the economic ties between the region and its former colonial master.

Indeed, in the medium term, the surprise move by Waemu and France threatens to cause further delays to the long-awaited currency union project of the larger Economic Community of West African States (Ecowas), encompassing regional heavyweights including Nigeria and Ghana, which had shown recent signs of progress after years of foot dragging and frustration.

The CFA franc was created by France in 1945 as the official currency for its then colonies in the west of Africa, carrying over into independence. The currency, currently in use in Benin, Burkina Faso, Guinea-Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo, was pegged initially to the French franc and then to the euro from 1999.

Colonial criticism

The currency has faced opposition for many years within west Africa and elsewhere, with critics portraying it as a relic of colonial rule (in its original iteration, CFA stood for 'Colonies Françaises Africaine', or 'French Colonies of Africa', before changing to 'Communauté Financière d'Afrique' in west Africa, translating as 'African Financial Community') used by France to retain economic control over its former colonies.

“The announced changes are very much in response to increased domestic political pressures [within west Africa] and the wider African diaspora,” says Adrienne Bénassy, associate director of African sovereign ratings at Fitch.

“The currency’s name still carried colonial connotations despite prior alterations, and the 50% reserves deposited on a current account at the French Treasury and France’s vote in some central bank governance bodies were perceived as giving France undue influence on economic policy, even though these requirements were more technical counterparts to the guarantee, in terms of monitoring, for example.” 

The move is in keeping, on the political level at least, with increasingly dovish statements by Mr Macron on France’s historic role in Africa in the past year. Underlining the point, Macron described the country’s colonial past in Africa as “a profound error”.

Wider impact

A parallel currency, also called the CFA franc, is used by the six states of the Central African Economic and Monetary Community, or Cemac. While no mention of this currency was made at the December announcement, observers believe it is likely to follow in the footsteps of its west African counterpart.

“Now that we know west Africa’s decision, maybe we will move to do the same with our French partner,” Equatorial Guinea president Obiang Nguema Mbasogo told reporters at a joint press conference with Mr Ouattara on December 30.

“Today we’re capable of managing our own currency without the interference of France,” he added.

Pegged in

Crucially however, the core structure of the new currency is set to remain the same, notably the peg with the euro. “On the economic side, the biggest criticisms of the franc have been that it is too strongly valued and isn’t flexible enough,” says John Ashbourne, senior emerging markets economist at Capital Economics.

“None of this looks set to change in the short term, although this new agreement could just be a first step for further reforms, as the BCEAO has so far only said that the peg would be maintained 'at this stage of the reform'.”

The decision to maintain the peg with the euro means the move will have little impact on the region's banks, according to Ms Bénassy.

“Waemu banks lend and collect deposits almost exclusively in CFA francs/eco, and our assessment is that the currency reform will not have a material impact on this practice as long as there is no talk of removing the euro/eco peg,” she said in a Fitch note issued in January.

“As long as confidence in the exchange rate is maintained, we do not expect deposit flight.”

French backstop

Despite doing away with requirements for deposits in France and French representation on key committees, Paris will continue to guarantee the convertibility of the eco to the euro, effectively working as an overdraft facility that can be accessed if Waemu’s reserves become dangerously depleted. The bloc has so far called on the guarantee just once in its history, in the run up to the devaluation of the currency in 1994.

Despite France taking a much less active role in the new currency, the majority perception is that the country will honour its commitment to support the eco should similar economic conditions arise once again in the Waemu region, as long as no major new countries join the bloc.

“The fact is that the peg to the euro will continue, which makes it a highly favourable arrangement for France and French companies doing businesses in the region,” says Yvonne Mhango, sub-Saharan Africa economist for Renaissance Capital. “The strong likelihood is that France would still intervene, as any economic shock in the region would hurt French businesses.”

IMF praise

Mr Ashbourne notes that the convertibility guarantee was not used in isolation in the 1990s, with the International Monetary Fund (IMF) and other institutions providing financial and technical support to regional states.

The IMF for its part welcomed the new arrangement as “a key step in the modernisation of long-standing arrangements between Waemu and France,” while praising the bloc’s monetary policy.

“The announced measures build on Waemu’s proven track record in the conduct of monetary policy and external reserve management,” says IMF managing director Kristalina Georgieva.

Expansion mode?

While few doubt France's commitment to Waemu, all eyes will be on the bloc's future actions with regards to the make up of its members. “As the emergency credit line is only for eight countries and is a temporary feature of the deal, I don’t think that there is a commitment problem from the French counterpart,” says Julien Manceaux, a senior economist at ING.

However, such a commitment would likely be upended if other major economies in west Africa were to join the currency.

"[If and when] bigger English-speaking countries such as Nigeria and Ghana join, it has to be expected that this agreement will be revised by France. Such countries have larger reserve needs and their weight in the group’s monetary decisions is likely to be bigger,” says Mr Manceaux.

The entry of the two countries into the new currency remains a distant prospect however, especially if the peg with the euro remains.

“While some smaller countries may be absorbed into the currency union under the current regime, for Ghana and Nigeria to join as it stands is hard to imagine,” says Ms Bénassy.

“Nigeria is very protective of its exchange rate regime, and has taken unorthodox measures to defend the naira. To give up that sovereignty would be a major step. Ghana, while being a bit more open to a currency union, sees it as a much more long-term project, and will be reluctant to give up the sovereignty it has.”

Ghanain president Nana Akufo-Addo said in a statement in late December that the country was “determined to do whatever we can to enable us [to] join the member states of [Waemu] soon, and use the eco, as, we believe, it will help remove trade and monetary barriers.”

Yet the statement, reported by Reuters, indicated that Ghana opposes maintaining the currency’s peg to the euro, urging Waemu authorities to move quickly towards “adopting a flexible exchange rate regime”.

A common currency

Indeed, the December 12 announcement of the eco renaming decision came as a surprise to many of the bloc’s neighbours, and appears to have thrown a spanner in the works of talks for a separate currency union for the wider Ecowas region, consisting of 15 states and nearly 400 million people.

Ecowas – consisting of the eight Waemu states in addition to Cape Verde, Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone – has for decades discussed launching a common currency for the bloc, with little in the way of progress.

In June 2019, however, Ecowas leaders announced that the new currency would be adopted by states in 2020 subject to certain criteria, would have a flexible exchange rate, and would itself be called the eco.

The West African Monetary Zone (WAMZ) Convergence Council – a body consisting of the six non-Waemu states of Ecowas – condemned the decision by Waemu to choose the name eco to replace CFA franc, following an emergency meeting in Nigeria in January.

Nigerian finance minster Zainab Ahmed said in a statement following the meeting that Waemu’s action was “inconsistent with the decision of the authority of the heads of state and government of Ecowas for the adoption of the eco as the name of an independent Ecowas single currency”.

“[The] WAMZ Convergence Council wishes to reiterate the need for all Ecowas member countries to implement the decision of the authority of the heads of state and government towards the implementation of the revised roadmap of the Ecowas single currency programme,” she added.

A stable priority

Yet the stability provided by the peg is unlikely to be given up anytime soon by Waemu, according to Ms Bénassy, making any convergence with Ecowas’s flexible currency plans a distant prospect at best.

“The peg has been an important anchor for macroeconomic stability in the region,” says Ms Bénassy. “While a flexible exchange rate could facilitate shock absorption, the transition would lead to heightened risks of financial and economic instability, and greater inflation volatility.”

Given the differing reactions from Nigeria and Ghana, the prospect of a single unified currency for Ecowas remains a distant prospect.

“There was never really a goal of expanding the CFA franc in west Africa beyond its eight members,” says Mr Ashbourne. “Ecowas’s currency plan was for the eco to be launched by the region’s anglophone countries, with the two currencies eventually merged. This is why the non-CFA countries have now condemned the use of the 'eco' name; they think that the Waemu countries are claiming a name that is meant for Ecowas as a whole."


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