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FRANC ZONE, FOR AN EMANCIPATION BENEFITTING ALL1
(APRIL 2018)
SUMMARY
France’s cooperation with Africa stands out because of the support it provides touching
on two core state powers: defense and currency. This type of support is appreciated south of
the Sahara, because the States there are still relatively young politically and often face threats.
Defense and currency involve areas of sovereignty. Consequently, any hint of
neocolonialism must be dispelled. In the area of defense, since the end of the Cold War,
diplomats and military personnel took special care to empower local stakeholders and to ensure
that any French actions took place under a transparent framework, validated by the international
community.
Monetary affairs are not handled in the same way: the franc zone remains a taboo subject. In
addition to the fear, sometimes justified, of speculation against the CFA franc, there is the
questionable premise that criticism of the terms and conditions of the cooperation amounts to
attacking the underlying principle itself. It must be accepted or rejected lock, stock and barrel.
Any debate is therefore limited to a discussion of its simplest elements.
A step forward occurred in 2017. During the summer, the franc zone was the focus of public
protests involving civil society and African experts in particular. In the fall, the president of the
French Republic stated in public that he was open to any reform proposals made by African
officials. At the same time, discussions on the economic and monetary integration of the African
continent gained momentum, particularly in West Africa.
To allow this development to bear fruit, two temptations must be resisted.
The first would be an overhaul of the franc zone that is limited to symbols. Of course, the
latter are more or less indefensible, starting with the name of the CFA franc itself. The franc is
a French currency that even France has abandoned. The CFA acronym stands for… “French
Colonies of Africa” (a term later replaced, even if the French acronym remained unchanged,
with “African Financial Community” in West Africa and “Financial Cooperation in Africa” in
Central Africa).
But settling for a reform of only symbols would be a terrible waste of an opportunity given the
challenges that await the zone. Major economic and social changes lie ahead over the next few
1 I want to thank Dominique Bocquet for all the comments and advise he gave me while this text has been prepared.
His technical skill as well as his intimate knowledge of the African reality have been of invaluable help. As usual, the
opinions in the paper remain mine.
2
decades: the population in Africa will double by 2050, there will be widespread urbanization,
bringing with it massive population movements, and its integration into international trade will
be transformed. Its colonial heritage and the divide between French-speaking and English-
speaking Africa will no longer be relevant as economic lines of separation (even if they persist
as cultural realities). Monetary cooperation must be reformed to take on these challenges.
The second error would be to mistake these transformations for a challenge to the
principle of stable exchange rates, which is still understandably favored in the countries
concerned.
Today, the economic debate quite rightly gives stable exchange rates their proper due,
particularly with regard to the currencies in the developing countries, often the victim of
speculation. But there is in fact a wide range of options possible within the principle of stable
exchange rates.
It is from this perspective that the present study aims to discuss the mechanisms of the franc
zone in detail and to pinpoint the necessary changes to be made.
It identifies four issues that are key to any reform.
- Decision-making rules must be aligned to be consistent with the exchange rate regime
that is supposed to characterize the zone. The regime consists of stable, but adjustable,
exchange rates. It can work well in Africa as long as there is an external guarantee to act as a
lightning rod against speculation. But it should not be confused with an absolute inflexibility,
preventing any changes even when exceptional circumstances arise. Yet, practically speaking,
this is the current situation arising from the decision-making rules in place, inherited from the
past.
- Convergence mechanisms must be strengthened. The franc zone is made up of African
monetary unions (WAEMU and CEMAC) which, much like in the euro zone, consist of national
States that hold the non-monetary instruments of economic policy (in particular, fiscal policy).
Under such a configuration, economic convergence is vital to guarantee the success of monetary
union. This aspect is always initially underestimated on all continents. Despite genuine efforts,
particularly in West Africa, convergence mechanisms suffer from deficiencies specific to the
franc zone, both within the monetary unions and in the organization of their relations with
France. This leads to a lose-lose situation. For the guarantor country, this results in a poorly
controlled financial risk (and expected to grow over time); for the African side, it creates a
recurring dependency on the guarantor
- Following the traces of the past, the perimeter of the franc zone must adapt to current
economic realities. Despite the membership of Equatorial Guinea in CEMAC and of Guinea-
Bissau in WAEMU, the borders still follow the divisions inherited from colonization, especially
those associated with French-speaking Africa and English-speaking Africa. This is evident in
the case of Ghana, which is practically an enclave in the franc zone but divided from its
neighbors by currency, even though it is the first economy in the neighboring area. An
enlargement aimed at changing this would represent an historic event. But this will be
impossible to achieve as long as the two prerequisites mentioned above have not been
addressed.
3
- Monetary cooperation must bring with it a greater opening up of the world to the
countries involved. Financial stability, control of inflation and a link with a major international
currency are all advantages enjoyed by the African monetary union that should receive more
recognition from the European Union and the rest of the world. And yet, the coordination and
relations organized around monetary cooperation are strictly limited to France. It is normal to
have a specific institutional link established between the guarantor country and its African
partners. Yet, it is a shame that there is no organized relationship between the latter and the
European Central Bank, on one hand, and between the countries in the euro zone, on the other
hand.
It is the ECB (and not the French Treasury or Banque de France) that sets the rates that make
up a kind of floor rate for African interest rates in the franc zone. Similarly, the advantages to
businesses provided by the stability of the CFA-euro exchange rate is not limited to French
companies: it also benefits, equally, all companies in the euro zone. Forgoing the chance for
better support from the other European countries for the franc zone represents another lost
opportunity.
Incidentally – and contrary to a widespread belief-, what governs exchange rate agreements
falls within the jurisdiction of the European Union and not that of its Member States (regardless
of their commitment to financial cooperation with Africa).
*
* *
Based on these observations, this study sets forth a series of guidelines and proposals for the
future.
The name of the currency, the location for printing banknotes and the practical terms of the
guarantee are issues involving identity. A consensus can easily emerge for a fresh start with
respect to these aspects that can be chosen by the African side.
But going further, an overhaul of the franc zone is essential to prepare it for the upcoming
economic and demographic prospects facing the continent: modify the decision-making rules
to allow for a collective African sovereignty, establish an effective convergence, put together
the basis for an endogenous and sound monetary policy, relaunch regional integration, open up
the monetary cooperation to new contacts and partners and, lastly, use enlargement and the
modernization of this mechanism as a lever for mobilizing the international community and
private investors to support Africa.
It is only by reforming this cooperation, the only one of its kind in the world, that we can use
its achievements to further the development of Africa.

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Summary: the future of the Franc Zone in Africa

  • 1. FRANC ZONE, FOR AN EMANCIPATION BENEFITTING ALL1 (APRIL 2018) SUMMARY France’s cooperation with Africa stands out because of the support it provides touching on two core state powers: defense and currency. This type of support is appreciated south of the Sahara, because the States there are still relatively young politically and often face threats. Defense and currency involve areas of sovereignty. Consequently, any hint of neocolonialism must be dispelled. In the area of defense, since the end of the Cold War, diplomats and military personnel took special care to empower local stakeholders and to ensure that any French actions took place under a transparent framework, validated by the international community. Monetary affairs are not handled in the same way: the franc zone remains a taboo subject. In addition to the fear, sometimes justified, of speculation against the CFA franc, there is the questionable premise that criticism of the terms and conditions of the cooperation amounts to attacking the underlying principle itself. It must be accepted or rejected lock, stock and barrel. Any debate is therefore limited to a discussion of its simplest elements. A step forward occurred in 2017. During the summer, the franc zone was the focus of public protests involving civil society and African experts in particular. In the fall, the president of the French Republic stated in public that he was open to any reform proposals made by African officials. At the same time, discussions on the economic and monetary integration of the African continent gained momentum, particularly in West Africa. To allow this development to bear fruit, two temptations must be resisted. The first would be an overhaul of the franc zone that is limited to symbols. Of course, the latter are more or less indefensible, starting with the name of the CFA franc itself. The franc is a French currency that even France has abandoned. The CFA acronym stands for… “French Colonies of Africa” (a term later replaced, even if the French acronym remained unchanged, with “African Financial Community” in West Africa and “Financial Cooperation in Africa” in Central Africa). But settling for a reform of only symbols would be a terrible waste of an opportunity given the challenges that await the zone. Major economic and social changes lie ahead over the next few 1 I want to thank Dominique Bocquet for all the comments and advise he gave me while this text has been prepared. His technical skill as well as his intimate knowledge of the African reality have been of invaluable help. As usual, the opinions in the paper remain mine.
  • 2. 2 decades: the population in Africa will double by 2050, there will be widespread urbanization, bringing with it massive population movements, and its integration into international trade will be transformed. Its colonial heritage and the divide between French-speaking and English- speaking Africa will no longer be relevant as economic lines of separation (even if they persist as cultural realities). Monetary cooperation must be reformed to take on these challenges. The second error would be to mistake these transformations for a challenge to the principle of stable exchange rates, which is still understandably favored in the countries concerned. Today, the economic debate quite rightly gives stable exchange rates their proper due, particularly with regard to the currencies in the developing countries, often the victim of speculation. But there is in fact a wide range of options possible within the principle of stable exchange rates. It is from this perspective that the present study aims to discuss the mechanisms of the franc zone in detail and to pinpoint the necessary changes to be made. It identifies four issues that are key to any reform. - Decision-making rules must be aligned to be consistent with the exchange rate regime that is supposed to characterize the zone. The regime consists of stable, but adjustable, exchange rates. It can work well in Africa as long as there is an external guarantee to act as a lightning rod against speculation. But it should not be confused with an absolute inflexibility, preventing any changes even when exceptional circumstances arise. Yet, practically speaking, this is the current situation arising from the decision-making rules in place, inherited from the past. - Convergence mechanisms must be strengthened. The franc zone is made up of African monetary unions (WAEMU and CEMAC) which, much like in the euro zone, consist of national States that hold the non-monetary instruments of economic policy (in particular, fiscal policy). Under such a configuration, economic convergence is vital to guarantee the success of monetary union. This aspect is always initially underestimated on all continents. Despite genuine efforts, particularly in West Africa, convergence mechanisms suffer from deficiencies specific to the franc zone, both within the monetary unions and in the organization of their relations with France. This leads to a lose-lose situation. For the guarantor country, this results in a poorly controlled financial risk (and expected to grow over time); for the African side, it creates a recurring dependency on the guarantor - Following the traces of the past, the perimeter of the franc zone must adapt to current economic realities. Despite the membership of Equatorial Guinea in CEMAC and of Guinea- Bissau in WAEMU, the borders still follow the divisions inherited from colonization, especially those associated with French-speaking Africa and English-speaking Africa. This is evident in the case of Ghana, which is practically an enclave in the franc zone but divided from its neighbors by currency, even though it is the first economy in the neighboring area. An enlargement aimed at changing this would represent an historic event. But this will be impossible to achieve as long as the two prerequisites mentioned above have not been addressed.
  • 3. 3 - Monetary cooperation must bring with it a greater opening up of the world to the countries involved. Financial stability, control of inflation and a link with a major international currency are all advantages enjoyed by the African monetary union that should receive more recognition from the European Union and the rest of the world. And yet, the coordination and relations organized around monetary cooperation are strictly limited to France. It is normal to have a specific institutional link established between the guarantor country and its African partners. Yet, it is a shame that there is no organized relationship between the latter and the European Central Bank, on one hand, and between the countries in the euro zone, on the other hand. It is the ECB (and not the French Treasury or Banque de France) that sets the rates that make up a kind of floor rate for African interest rates in the franc zone. Similarly, the advantages to businesses provided by the stability of the CFA-euro exchange rate is not limited to French companies: it also benefits, equally, all companies in the euro zone. Forgoing the chance for better support from the other European countries for the franc zone represents another lost opportunity. Incidentally – and contrary to a widespread belief-, what governs exchange rate agreements falls within the jurisdiction of the European Union and not that of its Member States (regardless of their commitment to financial cooperation with Africa). * * * Based on these observations, this study sets forth a series of guidelines and proposals for the future. The name of the currency, the location for printing banknotes and the practical terms of the guarantee are issues involving identity. A consensus can easily emerge for a fresh start with respect to these aspects that can be chosen by the African side. But going further, an overhaul of the franc zone is essential to prepare it for the upcoming economic and demographic prospects facing the continent: modify the decision-making rules to allow for a collective African sovereignty, establish an effective convergence, put together the basis for an endogenous and sound monetary policy, relaunch regional integration, open up the monetary cooperation to new contacts and partners and, lastly, use enlargement and the modernization of this mechanism as a lever for mobilizing the international community and private investors to support Africa. It is only by reforming this cooperation, the only one of its kind in the world, that we can use its achievements to further the development of Africa.