The announcement of the Beninese president on the withdrawal of the foreign exchange reserves of the CFA franc, currently housed in the
Bank of France, raises a lot of questions. What will happen to the trading account? What
serve these foreign exchange reserves? Here are some explanations.
Beninese President Patrice Talon announced, on November 7, in an interview with Rfi and
France 24, the withdrawal of the foreign exchange reserves of the CFA franc currently in the Bank of
France. "We all agree to end this model," he said, speaking visibly to
name of all WAEMU Heads of State. Beyond the "psychological value", such a decision, if it is
concretizes, will lead to a very profound change of the Cfa system as it currently operates. Indeed,
under the monetary agreements that bind the France to the member countries of the "Franc Zone", 50% of
Foreign exchange reserves of the Central Bank of West African States (BCEAO) must be compulsory
be paid to the Central Bank of France. In return, the France guarantees unlimited convertibility of the franc
Cfa and a fixed parity with euro.
Therefore, the withdrawal of these foreign exchange reserves, as announced, would "logically" amount to "breaking"
the monetary cooperation agreement with the France as it currently works, says Babacar Sène,
Director of the Centre for Applied Economic Research (Crea-Ucad). However, it calls for "caution"
on this issue, "especially since the counterpart in local currency of these reserves is already in
circulation, because for any currency that circulates, generally, there are behind foreign exchange reserves".
A key role in foreign trade
In practice, these reserves play a key role in international trade. Indeed, these assets in
currencies cover a number of months of imports, explains Malick Sané, head of the br Crea Trade Policy Laboratory. If the operating account is one of the
more decried of the monetary agreements with the France, it nevertheless has some advantages.
Currently, the France guarantees an unlimited current account deficit of waemu countries for their
Imports. "This means that our countries, from this guarantee, can import more than they have
export earnings," notes Mr. Sané. What will happen to this famous operating account if the countries of
WAEMU decide to repatriate all these foreign exchange reserves? "Everything will depend on what will be
agreed with the France," he replies. In any case, if this guarantee is missed, our countries will be obliged
to be "more vigilant" about the size of the current account deficit, "because it will be necessary
find the currency to compensate for this deficit, "says the specialist. In addition, the trading account serves as
solidarity valve between deficit (such as Senegal) and surplus (Côte d'Ivoire) countries of
WAEMU by acting as an equalization system.
Defending the currency in the currency market
It is not said enough, the France also wins in this system. "The fact of having the fixed euro-Cfa parity is
a guarantee for French investments in WAEMU countries. It is also a mechanism that
protects French companies from currency risk," says the director of Crea-Ucad. In
in addition to foreign trade, foreign exchange reserves are also used to defend the currency on the market
currencies. Indeed, for a central bank to really defend the parity of its currency, it is necessary
that it has foreign exchange reserves. So, "if we decide to move towards a floating exchange rate regime, it
will have to review the way reserves are managed, because for such a regime, it is the reserves of
exchange rates that will defend the parity of the currency on the currency market," notes Babacar Sène.
However, some question the origin of such a decision. Does the initiative come from African countries – this
What does Patrice Talon suggest when he says "we all agree" – or France? Despite constant statements by the French authorities to pass the buck to African leaders,
some African economists think that it is Paris that is at the maneuver. "This way of doing things is reminiscent of
that of former (French) Prime Minister Balladur who, in August 1992, surprised the political authorities and
African monetary of the franc zone by announcing that his country was unilaterally suspending the
principle of the redemption of the notes that were presented to him by the financial centers outside France, while
in accordance with the monetary agreements, the France was to ensure the free convertibility of the CFA franc with drawer
open (guarantee and unlimited overdraft granted to operating accounts)", recalls the economist and man
Ivorian politician Mamadou Koulibaly. It is also reminiscent of the precedent of the devaluation of the franc
Cfa which, in December 1993, was "brutally announced to African heads of state who did not want it and
who wanted to see Paris respect its commitments of the unlimited overdraft that the cooperation agreements
granted african central banks members of the CFA franc".
S. KA
A "reform" ?
In the end, he thinks that this is a "reform" that does not say what will happen to the operating accounts,
"a reform that comes with other projects of the same nature". And that it is the monetary authorities
French who need to save on interest payments (the bceao
foreign exchange reserves deposited at the level of the operating account are remunerated at a rate of 0.75%), and they are the ones who
take the initiative to move these reserves to other horizons. Still, the news, this time, is
from Cotonou and not from Paris! In any case, this announcement by President Talon, which is in addition to that
french Economy and Finance Minister Bruno Le Maire ("France is open for reform
ambitious CFA franc"), and the prospect of the entry into force of eco, the single currency of the
ECOWAS, suggests that we are moving towards great upheavals. Wait and see !
The other big unknown concerns the eco, the ECOWAS single currency whose entry into force is
announced in 2020. For the moment, the bloc of WAEMU countries and those English sent discordant messages about the nature of the exchange rate of this future currency. "The choice of a
Exchange rate regime is a political decision before being an economic decision. That's why it
it is essential that ECOWAS member countries resolve this issue at the political level," stresses
Babacar Sene. The latter is one of the economists who believe that compliance with the criteria of
Convergence is not an obstacle to the launch of the eco zone. To this end, he cites the example of the
Guinea-Bissau, which did not fulfil the convergence criteria at the time of its entry into the zone
Umoa. "With regard to the theory of Optimal Monetary Zones, there is a new approach that has been
developed in the late 1990s by two American economists and called the endogeneity of criteria
according to which having a monetary zone can make it possible to converge economies a posteriori
".
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Operating account: operating mode
Monetary cooperation between the France and the African countries of the franc zone is governed by four principles
fundamentals: guarantee of unlimited convertibility provided by the French Treasury, fixed parities, free
transferability and centralization of foreign exchange reserves. In return for the guarantee of the French Treasury, the
three central banks (bceao, Beac and the Central Bank of the Comoros) are required to file a
part (50%) of their foreign exchange reserves in a so Treasure. The operation of the operating account has been formalized by agreements signed between the
French authorities and representatives of the central banks of the franc zone. They work like
current accounts opened with the French Treasury and are remunerated at a rate of 0.75%.
These resources are particularly used to regulate the foreign trade of the countries of the franc zone.
For example, when a company resident in waeMU repatriates export earnings to its
bank, it sells the currencies to the Bceao. The latter lodges them in an external account and credits
then the account of this bank held in CFA francs. According to the latter's detractors, this is
precious financial resources (estimated at 13,000 billion CFA francs – more than 19 billion euros – end
2015) which the economies of the zone are depriving themselves of and which they could invest to finance their growth.
But, for the monetary authorities, this criticism is the very proof of the ignorance that surrounds the
operation of this monetary system.
S. KA