The CFA franc is the common currency for the Franc Zone. The Franc Zone, which is based on a desire to ensure greater monetary and financial stability, brings together 15 Central and West African countries, plus Comoros.
The CFA franc sometimes gives rise to questions and misconceptions. Here are answers to some of the most common questions.
- What is the Franc Zone?
- How does the Franc Zone work?
- What are the benefits of the Franc Zone for member countries?
- What role does France play in this initiative?
- Who makes policy decisions for the Franc Zone?
- Is the CFA franc a currency imposed by France?
- Why is the CFA franc printed in France?
- Who decided on the name of the CFA franc, and can it be changed?
- Does France benefit more from the Franc Zone than other countries?
- Have Franc Zone countries lost control of their currency?
- Does parity with the euro make goods more expensive? Do loans offered by banks in the Franc Zone have higher interest rates?
- Does the CFA franc curb Africa’s development?
The Franc Zone was created in the late 1930s on the eve of the Second World War. It includes 14 West and Central African countries as well as the Comoros, bound by a monetary cooperation policy. The zone’s purpose is to ensure the financial stability of its members. It comprises three independent economic areas, each of which has a central bank. These areas work closely together. They are:
- The West African Economic and Monetary Union (UEMOA), which brings together Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Togo and Senegal;
-* The Central African Economic and Monetary Community (CEMAC), which brings together Cameroon, the Central African Republic, Chad, Equatorial Guinea, Gabon and the Republic of the Congo;
- Comoros, which uses the Comorian franc.
It is based on four major principles:
- The CFA franc is pegged to the euro (the exchange rate has not changed since 1994 – €1 = FCFA 655.957).
- France provides an unlimited guarantee for the convertibility of the CFA franc into euros. Like all other currencies, the CFA franc is freely convertible to gold or another foreign currency. France has committed to meeting any conversion requests. For example, if a State in the Franc Zone cannot pay its imports in foreign currency, France will pay the corresponding amount in euros.
- In return, foreign exchange reserves are pooled by the different economic regions and deposited with the French Treasury (between 50% and 65% depending on the region).
- Current account transactions and capital flows are free in each region.
Monetary and financial stability
The stable exchange rate means that inflation is lower in the Franc Zone than in the rest of sub-Saharan Africa, which helps maintain the purchasing power of populations. In recent years, inflation has been less than 3% in the Franc Zone, compared to an average of 9% in sub-Saharan African.
Because the franc is pegged to the euro, investors in the euro area and other countries are more likely to invest in the Franc Zone, since they are protected against exchange rate risks.
Solidarity and regional integration
The Franc Zone supports the development of shared economic policies in each economic area through the pooling of foreign exchange reserves. In this way, it helps create bigger markets and encourage budgetary discipline, especially through common criteria that member countries agree to respect.
France does not play a dominant role in the governance of the Franc Zone.
Although the system has its origins in the monetary cooperation implemented during colonization, it has evolved considerably since then at the instigation of all stakeholders.
The system is essentially African, and preserves the balance and sovereignty of Franc Zone States. France does not take part in developing or implementing shared policies.
France’s representation on central bank authorities has decreased in recent decades. France is not represented at UEMOA or CEMAC, during conferences of Heads of State or Government, or during ministerial council or committee meetings, which are the Franc Zone’s main governance bodies.
Monetary sovereignty has been transferred from States to African regional central banks. Franc Zone member countries sit on these banks. The central banks decide how much currency should be in circulation while respecting price and monetary stability goals.
Heads of State and Government for Franc Zone member countries may also decide to change the exchange rate with the euro. This has happened once, in 1994.
No. Each country is free to leave the Franc Zone, either temporarily (like Mali) or permanently (like Guinea, Mauritania and Madagascar). It was African countries’ sovereign decision to create, join or remain in the Franc Zone. The participation of member countries depends on bilateral agreements and, since 1962, cooperation agreements with regional monetary unions.
The CFA franc has been printed in Chamalières by the Banque de France since the currency was created in 1945. The printing process is centralized to minimize manufacturing and transport costs. Franc Zone Heads of State and Government may decide by mutual agreement to change the place of printing. Many other African currencies are printed in third countries, because not all nations have the appropriate printing facilities. For instance, the Guinean franc, the Ethiopian birr, the Ugandan shilling and the Botswanan pula are printed in England; the Mauritanian ouguiya, the Eritrean nakfa, the Tanzanian shilling and the Zambian kwacha are printed in Germany; and the Liberian dollar is printed in the United States. Similarly, the euro is not printed in all 19 countries in the euro area. Notes are printed by 11 presses throughout the European Union.
There is a difference between printing a currency and deciding how many notes and coins should be in circulation. African central banks make these decisions for the CFA franc.
The term “Franc Zone” first appeared at the end of the 1930s, before World War II.
Franc Zone Heads of State and Government may decide to change the currency’s name at any time.
No. France does not use the African currency reserves deposited with the French Treasury to finance its external debt. And these deposits do not penalize the economies of African countries – on the contrary. Every year, France pays millions of euros in interest on deposits to African countries.
France’s role in investment and trade is often less important in the Franc Zone. In the UEMOA area, France accounted for 14% of imports and 6% of exports in 2016. In the CEMAC area, it accounted for 14% of imports and 3% of exports.
By ensuring the CFA franc’s unlimited convertibility into euros (even when the euro drops in value), France is shouldering an important financial responsibility.
No. A fixed exchange rate does not equate to a loss of monetary sovereignty. Thirty-three countries in sub-Saharan Africa (and many others around the world) have opted for fixed or semi-fixed exchange rates, because this protects them from external economic shocks and international fluctuations. For example, Lesotho, Namibia and Swaziland have all pegged their currencies to the South African rand (ZAR) as part of the Common Monetary Area (CMA). Elsewhere in Africa, Eritrea and Djibouti peg their currencies to the United States dollar (USD).
Does parity with the euro make goods more expensive? Do loans offered by banks in the Franc Zone have higher interest rates?
On the contrary – the fixed exchange rate means that price rises are limited, which helps guarantee the purchasing power of populations. By controlling inflation, Franc Zone central banks can keep their interest rates much lower (between 2 and 3%) than those offered by central banks in most neighbouring countries (often over 10%). This supports loans for businesses and individuals.
No. Economies in the Franc Zone are no less competitive than those in other sub-Saharan African countries, as seen in the 2016-2017 rankings in the Global Competitiveness Report, published by the World Economic Forum.
Furthermore, the CFA franc protects member countries from international fluctuations and helps prevent political or economic crises from becoming monetary or financial crises. Member countries have moderate inflation levels, which protects the purchasing power of populations.
In addition, several factors – the common currency, the pooling of foreign currency reserves, larger consumer markets and greater attractiveness for investors and foreign donors – support regional integration and growth.
Lastly, the monetary stability offered by the Franc Zone encourages foreign investment, including by the Agence Française de Développement (AFD), with a view to strengthening the economic, social, human and sustainable development of member countries. In this way, France helps finance infrastructure, urban development, the fight against climate change, water and sanitation, education and health. The beneficiaries of these projects are the African people.
Countries in the Franc Zone retain control of their wealth. Sums deposited in France are unrelated to GDP or French debt.
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Updated: February 2019