Many Africans cheered and applauded when Ivory Coast’s President Alassane Ouattara announced on Saturday “that, in agreement with the other West African Economic and Monetary Union Heads of State, we have decided to reform the CFA franc with the following three major changes: First, the name change of the currency from the CFA franc to the Eco.”
His speech marked the official end of the French-backed currency CFA francs for the eight countries belonging to the Economic Community of West African States (ECOWAS). Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo currently use the CFA franc which has been criticized by many as a French relic from colonial times. Further, France will stop holding “50 percent of the reserves in the French Treasury” and will withdraw “French governance” related to the currency. The Eco’s value will be pegged to the euro, just like the CFA has been for more than two decades.
Remnants of French empire
The CFA is used in 14 African countries, split into the West African CFA and the Central African CFA. However, the changes will only affect the West African form of currency. Originally, the CFA franc was introduced by France in 1945 and at the time stood for “French Colonies in Africa.” Nowadays, it stands for “African Financial Community in West Africa” and “Financial Cooperation in Central Africa.” It is used by a population of about 150 million.
Students of the Cheikh Anta Diop University of Dakar in Senegal were thrilled after the news hit. They told DW: “Many countries are fleeing the CFA Franc, that is why they do not want to invest in Africa. With this change from the CFA franc to the ECO, there will be more jobs for the youth.” Another student said: “I think these efforts are reassuring, even if the effect is not as desired by the Senegalese, but there will be improvement.”
Africa facing currency reform
A modest victory
However, not everyone is as optimistic. According to Mor Gassama, economist and researcher at the Cheikh Anta Diop University in Dakar, the introduction of the Eco is a victory to be celebrated with great modesty. He says that there are still many grey areas in relation to the introduction of the Eco.
“These are just words at the moment because the problem in Africa, as everyone knows, is not just a problem of money”, he told DW. “It is first and foremost a problem of the management of public funds. If a head of state does not respect his commitments if the best resources we have are squandered or not used according to our priorities, whatever the name of the currency, it will not do much good. The decision is more political than economic.”
Two separate Ecos?
The Eco is expected to be adopted on the first of July 2020, but since the concept arose in 2003, the target launch date for the currency has been postponed several times: in 2005, 2010 and 2014. Countries in the franc bloc and other West African nations such as Nigeria and Ghana, which have their own currencies, have for decades debated creating their own currency, the Eco.
This should promote regional trade and investment. “ECOWAS is ultimately about regional economic integration. Ultimately, that cannot be achieved without the currency,” Solomon Jamiru, Deputy Minister of Information of Sierra Leone, told DW this summer.
‘Worse than the CFA’
However, a July launch of the Eco is not being welcomed from all sides, Martial Ze Belinga, a Cameroonian economist, told DW: “In a way, we now have two Ecos. One that the 15 African countries voted for and whose name was already decided in 2003. And today there is a new Eco which France and the West African Economic and Monetary Union (WAEMU) countries have chosen — independently of the others. This seems astonishing. One could at least have waited for them to give their approval.”
In the economist’s view, it does not make sense to promote West African monetary integration without involving countries like Ghana or Nigeria. “A country that accounts for over half of the population in the region cannot be left out. ECOWAS must, therefore, react very quickly. Otherwise, its own project, the currency unit, will get into difficulties and it will lose credibility as an organization.” He also hopes that the Central African franc bloc is thinking further ahead. “My impression is: they are waiting and watching. It is urgent that Central Africa works on a plan B to create a perspective for itself that gives security.”
Senegalese economist Samba Sylla agrees: “The Eco could be worse than the CFA franc. If you take the criticism of the CFA franc seriously, you cannot go in the direction of ECO.” According to him, the CFA is firstly under French domination and secondly a common currency which does not work. “So far there is no work that shows that the two CFA zones are optimal monetary zones. The advantages of keeping these currencies are lower than the disadvantages. One replaces a dysfunctional common currency with another, even less functioning common currency. This does not seem like a good deal to me.”
Different philosophies about money
Sylla believes it is unrealistic that there will be the Eco for the whole of West Africa in 2020, due to lacking economic and political foundations. “That would require a treaty between the 15 ECOWAS countries, which does not exist. It would need a statute for a new central bank, and we would need to harmonize banking legislation. That does not exist at present.” Another problem would be different cultures and philosophies about currency and money. “Those are very different, for example between the Anglophone countries, such as Nigeria and Ghana, and the others.”
Before joining the currency, countries are required to meet ten key demands by the West African Monetary Institute (WAMI). Those include a budget deficit of less than 3 percent, an inflation rate of less than 10 percent, debts worth less than 70 percent of GDP and budget deficits of no more than 10 percent of the previous year’s tax revenue. Nigerian Finance Minister Zainab Ahmed said that only Togo was on track to meet all the financial requirements for the Eco zone. The International Monetary Fund welcomed the reform, saying it was “a key step in the modernization of long-standing arrangements” between the WAEMU and France.