This agreement was not reached in an amicable discussion among the wealthier European states. The Germans, who provide the bulk of the cash, were bludgeoned into agreement by Sarkozy of France who twice threatened to pull France out of the Eurozone if the Germans wouldn’t go along with the plan. This is very important as France is not playing only with its own money. To a large degree it is cushioned by the reserves it holds from francophone Africa as part of the integration of the CFA francs into the Eurozone.
There are actually two separate CFA francs in circulation. The first is that of the West African Economic and Monetary Union (WAEMU) which comprises eight West African countries (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. The second is that of the Central African Economic and Monetary Community (CEMAC) which comprises six Central African countries (Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon), This division corresponds to the pre-colonial AOF (Afrique Occidentale Française) and the AEF (Afrique Équatoriale Française), with the exception that Guinea-Bissau was formerly Portuguese and Equatorial Guinea Spanish).
The WAEMU CFA franc is issued by the BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest and the Bank of the Central African States (BEAC) controls the CEMAC CFA franc. This currencies were originally pegged at 100 CFA for each French franc but, after France joined the European Community’s Euro zone at a fixed rate of 6.65957 French francs to one Euro, the CFA rate to the Euro was fixed at CFA 665,957 to each Euro, maintaining the 100 to 1 ratio. It is important to note that it is the responsibility of the French Treasury to guarantee the convertibility of the CFA to the Euro.
The monetary policy governing such a diverse aggregation of countries is uncomplicated because it is, in fact, operated by the French Treasury, without reference to the central fiscal authorities of any of the WAEMU states. Under the terms of the agreement which set up these banks and the CFA the Central Bank of each African country is obliged to keep at least 65% of its foreign exchange reserves in an “operations account” held at the French Treasury, as well as another 20% to cover financial liabilities.
The CFA central banks also impose a cap on credit extended to each member country equivalent to 20% of that country’s public revenue in the preceding year. Even though the BCEAO and the BEAC have an overdraft facility with the French Treasury, the drawdowns on that overdraft facility are subject to the consent of the French Treasury. The final say is that of the French Treasury which has invested the foreign reserves of the African countries in its own name on the Paris Bourse.
The central banks of these 2 zones – the Central Bank of West African States (BCEAO) for WAEMU and the Bank of the Central African States (BEAC) for CEMAC – have supranational status. For each zone, the reserves of member states are pooled; members have no independent monetary policy and no possibility of undermining the central bank’s independence or monetising public deficits.
This fixed exchange rate regime draws its credibility from monetary agreements with France that, via the Treasury, In short, more than 80% of the foreign reserves of these African countries are deposited in the “operations accounts” controlled by the French Treasury. The two CFA banks are African in name, but have no monetary policies of their own. The countries themselves do not know, nor are they told, how much of the pool of foreign reserves held by the French Treasury belongs to them as a group or individually. The earnings of the investment of these funds in the French Treasury pool are supposed to be added to the pool but no accounting is given to either the banks or the countries of the details of any such changes. The limited group of high officials in the French Treasury who have knowledge of the amounts in the “operations accounts”, where these funds are invested; whether there is a profit on these investments; are prohibited from disclosing any of this information to the CFA banks or the central banks of the African states.
As put most elegantly and clearly in the Frontier Telegraph. “Imagine that one spends all season working hard on the farm: tilling the soil, planting, weeding, praying for rain and sunshine in appropriate quantities, cultivating the crops and then finally harvesting them.
One week to market day, the well-tended tuberous cassava roots, for example, are harvested, peeled and prepared; they are well ground; the best garri in the world is crafted; the garri looks nice and smells even better--the yellowish one fried with palm oil, and the white one too; the type of garri that will go down even without sugar well, well.
On market day, the journey is made to the market; the garri is sold for say 10,000CFA francs. Now one begins to consider what can be done with that money: buy bread and eggs for breakfast, pay for school uniforms and fees, purchase medicines etc. One can even imagine relaxing with some nice palm wine at night. Honest work, honest money earned.
But wait!
On the way out of the market, a strange person standing at the gate of the market decides to extort significant concessions from your hard work and enterprise. This strange person demands that you give 6,500CFA francs of the 10,000CFA francs for him to keep in a bank account controlled by him alone. Then asks that you give him another, 2,000CFA francs as liability for the njangi or any other business venture you may want to use your money for. That is 8,500CFA francs of your 10,000CFA francs.
The person then takes that 8,500CFA francs and go play his own njangis , invest in other businesses, manufacture arms and train others, including some of your own brothers and sisters to make sure that each time he meets you at the gate of the market you will offer no resistance to his demands. If and when he feels like it, he gives you 50CFA francs called "l'aide au dévelopment" and tells you how lazy and stupid (he may have a point here) you are. But he also tells you and the world that he is your best friend and protector.”
The key to all this was the agreement signed between France and its newly-liberated African colonies which locked these colonies into the economic and military embrace of France after colonjialism was officially ended. This Colonial Pact not only created the institution of the CFA franc, it created a legal mechanism under which France obtained a special place in the political and economic life of its colonies.
Some of the consequences for the Africa countries of the continuation of a policy of dependence are obvious – lack of competitive options; dependence on the French economy; dependence on the French military; and the open-door policy for French private enterprise. The creation and maintenance of the French domination of the francophone African economies is the product of a long period of French colonialism and the learned dependence of the African states. For most of francophone Africa there are only limited powers allocated to their central banks. These are economies whose vulnerability to an increasingly globalised economy expands daily. There can be no trade policy without reference to currency; there can be no investment without reference to reserves. The African politicians and parties elected to promote growth, reform, changes in trade and fiscal policies are made irrelevant except with the consent of the French Treasury which rations their funds.
Many of the goods produced in the CFA zone are priced in CFA francs. As the Euro slides down to parity with the dollar the decline in the purchasing power of the CFA declines along with it as it is pegged to the Euro. However, many products like oil and fuels are priced in dollars. African countries will get fewer dollars for their sales of their commodities at the same time as having to pay even more for their dollar-priced goods. Even if they sold their goods for dollars they would have to deposit 85% of these earnings in the French Treasury. Their reserves are propping up the French economy and they have no recourse to them as individual nations. Still less do they know how much of these reserves are theirs. It is a trap in which they are caught. This is economic slavery and the francophone African leaders (with the exception of Wade in Senegal and Mamadou Koulibaly in the Ivory Coast) don’t seem too disturbed about it. Personally the African presidents and their families do quite well under this arrangement despite the fact that their countries suffer.
These francophone states are part of the Economic Community of West African States (ECOWAS). The ECOWAS has had as a cornerstone of its policy the creation of its own, region-wide currency. They were to have introduced their common currency by the end of 2009. They have created their own grouping, the West African Monetary Zone –WAMZ. These states (Ghana, Guinea, Nigeria, Sierra Leone, the Gambia and Liberia) hoped to introduce a new common currency, the ECO, to rival the CFA franc and, eventually, to merge the ECO and the CFA franc into a single monetary unit for the region. The pace of these developments was very slow. Perhaps the Greek crisis and the fundamental undermining of the Euro will push the francophone states to abandon the CFA franc, take charge of their own economies and join with their African brothers in the ECOWAS in a common currency, the ECO.
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