West Africa set to reform CFA franc, keep euro peg

Bloomberg

The West African Economic and Monetary Union has agreed with France to a number of changes to the CFA franc currency, including a new name, Ivory Coast’s President Alassane Ouattara said, as the West African bloc inches closer to a split from the French-backed currency.
The monetary union will keep its euro peg while moving its currency reserve from France, the former colonial power, Outtara said in Ivory Coast’s commercial capital Abidjan. France will no longer have a representative on the board of the central bank, Ouattara told reporters during a two-day visit by French President Emmanuel Macron.
“This decision shows our determination to create an integrated and dynamic regional market, a source of prosperity for us and for future generations,“ Ouattara said.
The reforms constitute a key step in the modernisation of long-standing arrangements between the West African Economic and Monetary Union and France. For the countries who have used the CFA franc since independence almost 60 years ago, the changes mark a significant shift in economic outlook from one focused on France to seeking regional opportunities for growth.
“These reforms put an end to a system that has maybe played out its role and will hopefully lead to greater regional economic mobility and stability,” Macron said.
The CFA franc is used in two African monetary zones, one for eight West African countries and the other for six, mostly petro-states, in Central Africa. In return, the states have to keep half of their reserves in France,
on which the French Treasury pays a 0.75% interest rate.
That requirement will be scrapped for the West African zone when it transitions to the new currency, to be dubbed the eco, Ouattara said.
A strong supporter of the French-backed currency, Ouattara said he hoped the reforms would allow the countries to “consolidate our dynamic growth, increase the buying power of the population and address issues including introducing a single currency” for the West African region.
The Ivorian leader also flew to the Nigerian capital, Abuja, on Saturday where he briefed a meeting of presidents of member nations of the Economic Community of West African States on the agreement with France. Nigerian President Muhammadu Buhari welcomed Macron’s decision not to oppose the creation of the new regional currency, according to an emailed presidency statement.
The reforms maintain “key elements of stability” that have served the region well, including the fixed exchange rate with the euro and the guarantee of unlimited convertibility provided by France,” Kristalina Georgieva, the International Monetary Fund’s managing director, said in a statement on its website.
The system is facing questions about France’s ongoing role in Africa with opponents saying it prevents countries from devaluing to counter external shocks, managing inflation and hampering trade.
Benin’s President Patrice Talon in November called for Francophone nations in West Africa to move some reserves from France in order to have more control over the management of their currency.
“Psychologically, with regards to the vision of sovereignty and managing your own money, it’s not good that this model continues,” Talon said.