On February 12, 2020, the Finance Committee of the French National Assembly devoted a working session to the reform of the CFA franc, announced a few weeks earlier, on December 21, 2019, by French President Emmanuel Macron and his counterpart from Côte d'Ivoire, Alassane Ouattara.
Created in 1945 by the French provisional government, the CFA franc is the last colonial currency still circulating on the African continent. Still under the political and financial supervision of the French government, it is used by 187 million people, divided between the six countries of the Central African Economic and Monetary Community (CEMAC), and the eight countries forming the West African Economic and Monetary Union (WAEMU). The reform in question concerns only the WAEMU CFA franc (another reform is apparently under consideration for the CEMAC CFA franc).
To explain to the deputies the changes that were going to be made and answer their questions, an executive of the French Treasury and a representative of the Bank of France were invited. The video of this meeting is available at Internet.
While this session made it possible to formulate some important reminders and to provide clarifications, some of the explanations that the two technicians gave to parliamentarians deviate from the facts or are very partial. Obviously, very few of the MPs present seemed equipped – or prepared – to deal with and understand this issue and its stakes.
We have already written about this reform. But it seemed useful to us to take up what had been said in the National Assembly, and to take stock, so that ordinary citizens and French, European and African political leaders are informed as best as possible, knowing that the national parliaments (African and French) will be consulted for the ratification of the text of this re form, probably in the coming months. The France will also have to notify the monetary authorities of the euro area of the proposed reform (the latter provide a framework for monetary cooperation between the France and the countries of the franc zone by virtue of the decision of 23 November 1998 of the Council of the Union).
As a first step, we will take up the few useful pieces of information that were shared with Members during this meeting. In a second step, we will come back to the remarks that seem problematic, even very problematic.

Part 1: Useful information and reminders Nothing changes
Treasury and Bank of France officials began by indicating that the reform left intact "essential elements" of the Cfa system, namely the fixed parity with the euro and the "guarantee of unlimited convertibility" of the France. The aim has been above all to "get out the political irritants", which "are not necessary to ensure fixed parity and guarantee".
The "political irritants" are the name of the CFA franc (to be renamed "eco"), the presence of French representatives in the technical bodies of the Central Bank of West African States (Bceao) and the obligation for the Bceao to place 50% of its reserves in the French Treasury. These are indeed the most visible indicators of the subordination of WAEMU member countries to France.
By their remarks, the two speakers confirmed that the reform described as "historic" by Mr. Macron and Mr. Ouattara did not ... change anything in substance. It is understandable that by removing the "political irritants", Paris hopes to put an end to the many criticisms on the CFA franc, which have gained more and more momentum over the last three years.

The France remains the boss
Both speakers elaborated on how the France will ensure the "control of its risk" as a "guarantor". For the France to define the conditions for granting its 'guarantee'.
They explained that this "risk control" will go "through other means" than those used so far (including the presence of representatives of the France in the bodies and the centralization of half of the reserves in the French Treasury), referring to "issues of reporting, dialogue in case of crisis approach". They added : "We worked with the Bceao on a reporting framework on elements of financial information, monetary developments, the evolution of reserves, allowing us to have the same level of information as before and a channel of dialogue so that, when we approach a situation where the state guarantee could be called, we can put forward our point of view on the restoration of the great balances".
This is yet another confirmation that nothing changes : the French Treasury will continue to have a right of scrutiny/exercise control over the activities of the Bceao and its member countries.
It should be noted that the two technicians do not seem to be on the same wavelength as the French Minister of the Economy, Bruno Le Maire, who declared on January 28 before the Foreign Affairs Committee of the National Assembly: "The umbilical cord that still connected the member countries of the CFA franc zone, now the eco, to the French Treasury is thus cut." Unless it is a reversal in Bercy's communication.

African countries will have to ratify the text prepared by the France
During this session, it was specified that the new agreement concluded between WAEMU and the French Ministry of Finance should be ratified by the French Parliament and that of each of the eight WAEMU member states. "We are working on the ratification bill, it will take a few months for the text to be submitted to parliaments. The idea is to move quickly." The "secondary implementing texts" are also being prepared, including the "guarantee agreement" for the technical arrangements concerning the "guarantee of unlimited convertibility". Note : neither WAEMU nor the French Ministry of Economy and Finance have so far considered it useful to make public the agreement they signed on December 21, 2020, just after the announcement of the reform.
When we asked the Ministry of Economy and Finance at the beginning of January whether it was possible to obtain this text, we were told : "The text is not public at the moment. The Treasury still has no deadline for publication."

ECOWAS is not for tomorrow
The parliamentarians' guests argued that the France was "in favour of regional integration" in West Africa. But they have also repeatedly said that the ECOWAS single currency is a "very, very long-term" perspective.
Recall that ECOWAS is a regional organization that brings together the fifteen countries of West Africa including those of WAEMU. It has a single currency project that dates back to 1983. In June 2019, it decided to give this future currency the name eco (diminutive of Ecowas, English translation of the acronym ECOWAS).
The two technicians acknowledged that, since the announcement of Mr. Macron and Mr. Ouattara, the name "eco" "refers to two different realities" : the ecowas eco and the eco, the new name chosen for the WAEMU CFA franc. However, they did not allude to the criticisms made by several ECOWAS countries about the reform of the CFA franc. The finance ministers and central bank governors of Nigeria, Ghana, Guinea, Gambia, Sierra Leone and Liberia expressed, on 16 January 2020, their concern about the WAEMU's decision to rename the CFA franc with the name chosen for the ECOWAS single currency; which does not correspond to the ECOWAS roadmap.
In the opinion of the representative of the French Treasury, the rapid establishment of a single regional currency does not seem to be an emergency for African countries including "Nigeria which does not seem in a hurry" and "the WAEMU countries which do not seem to be particular either. In a hurry to move to a monetary union of fifteen'. This suggests, according to him, that the fixed parity of the CFA franc with the euro will last for some time. "It is possible, probable" that monetary integration in West Africa "will be done by gradual aggregation of certain countries that may have an interest in joining the WAEMU," he concluded. A vision that is also not in line with the ECOWAS roadmap.

Bceao and Beac are "big customers" of the Bank of France
An interesting information was delivered by the representative of the Bank of France : " The Bceao is the second customer after the euro zone of the Bank of France for the printing of banknotes." The Bceao and the Beac (Bank of Central African States) are "its two main external customers of the euro zone and represent more than 40% and even almost half of its plan of charges on the future". They are "important customers for the future of this business in France". This probably explains why, after 60 years of "monetary cooperation", the Beac and the Bceao are still unable to manufacture their own banknotes. As we write in our book The Invisible Weapon of Françafrique. A history of the CFA franc (page 130): 
"Between 2013 and 2017, the Bceao spent €226.8 million on 'cash circulation maintenance', which includes the purchase of   monetary signs, their transport and insurance, an average of €45 million per year. Between the mid-2000s and 2017, the bill amounted to just over half a billion euros."
Indication given by the representative of the Banque de France: the latter has not yet received a printing order for banknotes denominated in eco.

'No risk of transfer'
Both speakers made several important clarifications concerning the "guarantee of unlimited convertibility". It was exercised only very rarely between the 80s and the early 90s, they recalled. Since at least 1994, this "guarantee" has not been requested by the Beac and the Bceao. Moreover, its existence does not imply that the two CFA francs are fully convertible with other currencies, including the euro. The "guarantee" "is fully compatible with a relatively limited convertibility of these currencies [the two CFA francs] which is limited by exchange controls". In other words, it is inappropriate to speak of "unlimited convertibility". A logical conclusion that the representative of the Bank of France does not draw for all that.
Finally, the real function of the French "guarantee" (nominal rather than real, as we will see in the second part), is to facilitate the freedom of transfers : the "French guarantee eliminates the risk of transfer : at no time will you run out of currency", he said. This confirms the interest of the Cfa system for multinationals operating in the countries of the franc zone and which make their profits in CFA francs.

WaEMU has no economic
justification The representative of the Bank of France acknowledged that WAEMU - in the same way as ECOWAS - is not an " optimal monetary zone", that is to say that the countries that compose it do not meet the institutional, political and economic prerequisites that make the sharing of the same currency beneficial. for each of them. However, he could have gone further by drawing conclusions from this observation : in this case, why have a single currency, the CFA/eco franc? It is clear that, on the fringes of French supervision, the other aspect that makes the CFA franc a colonial currency is the fact that it is shared by countries that have very different economic fundamentals, levels of development, economic cycles, etc..

Part 2 : Problematic
Let us now review what was said during this meeting of the Finance Committee, which, in our view, is problematic.

The choice of fixed exchange rate regime
Statement: "The monetary cooperation agreements are intended to help these countries (of the franc zone, editor's note) to maintain the choice of exchange rate regime that they have made themselves. The France, through the unconditional and unlimited guarantee it provides, aims to support this choice of a fixed exchange rate regime," the two guests told the members of the Finance Committee.
Our Comment : African countries were imposed the CFA franc and the fixed exchange rate regime during colonization. Before granting them "independence", the French authorities forced the future states to sign a long list of so-called "cooperation" agreements, including monetary agreements requiring the use of the CFA franc. French Prime Minister Michel Debré summed up this principle of these conditional independences in a letter, sent in July 1960, to his Gabonese counterpart, Léon Mba: "Independence is given on condition that the State, once independent, undertakes to respect the cooperation agreements. […] One does not go without the other."
At its creation, the CFA franc had no other purpose than to allow the Metropolis to continue to acquire African raw materials in French currency at low prices and without exchange rate risk, and to provide outlets for its companies. As the Cfa system has never changed since 1945, its purpose has remained the same.
The France insists on fixed parity because it goes hand in hand with the "guarantee", a pretext that offers it an instrument of political control over its former colonies. The France cannot grant a 'guarantee' in the currency of a third country, due to the exchange rate risk. This is why it has so far not been enthusiastic about the idea of anchoring the CFA franc to a basket of currencies.

On the 'stability of the CFA franc'
Statement : The CFA franc is an "extremely stable" currency thanks to its fixed parity with the franc at the beginning and the euro today (one euro = 656 CFA francs).
Our Comment : Before the changeover to the euro in 1999, the CFA franc was pegged to the French franc, a weak and very unstable currency that was the subject of ten devaluations between 1945 and 1986. The strong instability of the French franc reflected on the external value of the Cfa.
Evolution of the WAEMU CFA franc (XOF) against the dollar between 1960 and 2020
The so-called "stability" of the CFA franc therefore existed only against the French franc. Because of the fixed parity, the Cfa countries suffered the devaluations of the French franc in the same proportions. These devaluations had a strong impact on their economies because the dollar is the currency in which a significant proportion of their external debt is denominated as well as the prices of a large part of their export products. The debts they had in currencies other than the franc were therefore increasing. While their foreign exchange reserves, mainly held in French francs (100% between 1960 and 1973 ; then 65% between 1973 and 1999), lost value with each devaluation of the franc.
Despite the arrival of the euro, a much more stable currency than the French franc, the external value of the CFA franc has remained very volatile, given that the value of the euro in dollars varies freely. When the euro appreciates against the dollar, cfa countries lose price competitiveness: they find it more difficult to sell their products abroad and their export earnings in dollars lose value when they are converted into CFA francs. Between October 2000 and mid-July 2008, the CFA franc gradually appreciated by more than 90% against the dollar ! During this period, a study by the French Development Agency highlighted that the fixed parity of the CFA with the euro had been one of the main factors responsible for the bankruptcy of cotton producers and marketing companies in Burkina Faso :
"In the long term, given the potential for appreciation of the euro [...] and knowing that a significant increase in world prices for [cotton] fibre in USD is unlikely [...], the Burkinabe cotton sector appears threatened. Without adjustment in nominal terms [i.e., without a revision of the CFA franc/euro parity], the risk is to see the continuation of the adjustment in real terms [i.e. a fall in the general standard of living] - made inevitable by the deterioration of the terms of trade - and therefore the continuous weakening of society s cotton mills and related actors.»
The pegging of the CFA franc to a "strong" euro and the free trade agreements with the European Union are two factors whose combined effect is to impoverish African peasants and prevent any prospect of industrial transformation.

The overvaluation of the exchange rate
Statement : On the exchange rate: "There is no misalignment in WAEMU or CEMAC. The exchange rate is in line with fundamentals. This is what the IMF says too ! To our knowledge, there is no weight on export competitiveness. There has been no overvaluation of the CFA franc since 1994," meps were told during the meeting.
Our comment : The IMF report on waeMU dated March 2019 highlights that the CFA franc is overvalued by 5% on average (page 30). Historically, the CFA franc was born overvalued. When it was created in 1945, 1 CFA franc was exchanged for 1.70 francs. In 1948, 1 CFA franc was worth 2 francs. This monetary parity (despite the change in the unit of account of the franc became "heavy franc" in 1960) remained stable until 1994 ! The work of the BCEAO itself shows that the CFA franc was chronically overvalued in the various WAEMU countries, from the 1960s to the devaluation of 1994.
Subsequently, the disappearance of the franc in favour of the euro wiped out the gains in terms of external competitiveness that the 1994 devaluation had made possible, as confirmed by UNCTAD in its Trade and Development Report 2007 (pages 134-135).
However, it is necessary to go further in the analysis, because an average rate of overvaluation for eight countries has no economic significance. The rate of overvaluation varies from country to country and this is the main problem. Hence the question once again: does it make economic sense to maintain this single currency?

The French
'guarantee' Declaration : The supposed "stability" of the CFA franc is "linked to the presence of a guarantee that the France provides" and which is called "guarantee of unlimited convertibility" : if the area lacks foreign exchange reserves to cover its external liabilities, the France 'brings him euros'.
Our comment : The France "lends" euros to central banks, and not "brings", which is not exactly the same thing. Moreover, she has never lent them euros until today...
The "stability" of the CFA franc is primarily linked to the fact that the monetary policy of the Bceao and the Beac follows that of the euro zone, which has low inflation. The CFA franc has become a euro in disguise since 1999, just as it was previously a French franc in disguise. To be honest, the CFA franc is not even a currency, but a monetary sign of the French Treasury. It was the first report on the franc zone published in 1953 that made such an observation : all the currencies of the franc zone are multiples or submultiples of the French currency!
This "stability" then results from the fact that the countries of the zone pursue a policy (dictated by Paris, it is true) consisting in maintaining a level of reserves to cover their external commitments widely. This has always made the French "guarantee" superfluous.
As we explain in our book, The Invisible Weapon of Françafrique. A history of the CFA franc, the French "guarantee" is a putative concept. It is the African States themselves which, with their foreign exchange reserves, guarantee the value of the CFA franc and therefore its fixed parity with the euro. This is exactly what Bernard Vinay, former director at the Central Bank of Central African States and Cameroon (now Beac), wrote in 1980, quoted by the Senegalese economist Makhtar Diouf: "The guarantee is virtual as long as the (African) issuing institutions have reserves ... When the countries of the franc zone have of foreign exchange reserves, this guarantee is purely nominal since it is not used".
Note that the adjective "unlimited" associated with the "guarantee" is false : the France cannot lend unlimited euros. Speakers at the sitting in Parliament also spoke of an 'unconditional' guarantee. The term is also inaccurate since the France has hitherto had several counterparties : the foreign exchange reserves deposited in the operating accounts opened in the books of the French Treasury (despite the contrary assertions of the representative of the Bank of France), the bceao's stock of monetary gold, nearly 90% of which is deposited with the Banque de France, its presence in the "technical" bodies of the Bceao and the Beac, not to mention the IMF – which is its screen.
In 1994, the France decided, together with the IMF, to devalue the two CFA francs by 50%, instead of playing its role as guarantor.

On the use of foreign exchange reserves of African countries
Declaration : "We do not finance at all the debt of the France with these reserves" (= the reserves placed in the operating account with the French Treasury).
Our comment : Yet it is the opposite, as admitted in 1970 by a report by the French Economic and Social Council. It reads :
'The advantage for the French Treasury of the existence of credit balances in the operating accounts:
1. The credit balances of the operating accounts shall be one of the resources used by the French Treasury to finance the burden which results for it from the overdrafts of implementation of the finance laws and the amortization of the public debt."
In 2019, a French Treasury official told German radio Deutsche Welle: "What is factually true is that these sums [placed in the operating account], very limited, come very marginally to mitigate the volume of debt that is issued each year by the state, since de facto, they are present in cash on the State's account. This is technically true, but financially marginal."
The foreign exchange reserves brought to the France by the Beac and the Bceao (liquidity available in the short term for the French Treasury) represented 15% of the French public deficit in 2017. This type of comparison makes more sense than comparing them to a stock of public debt payable over decades.

Remuneration for assets invested in the operating account
Declaration : The operating account "gives rise to remuneration with a favourable interest". The foreign exchange reserves of the countries of the franc zone deposited in the operating accounts are "remunerated at 0.75%". It is "very advantageous for central banks to have this investment". This "remuneration of the accounts is much higher than what the France has when it deposits its cash with the ECB (today, it is -0.50%)". "Overall, it costs and it has cost the France. It is an element of liberality in relation to the franc zones."
Our Comment : Foreign exchange reserves deposited in the operating account are resources that African countries make available to the France. It is normal for this placement to be remunerated. There is no "gift" in this: "When the balance (of the operating accounts) is positive, it constitutes a foreign exchange gain for the France," wrote Bernard Vinay, in 1980.
Historically, real interest rates – that is, inflation-adjusted nominal interest rates – served by the France have often been negative. This means that African countries paid the France to keep their currencies, to use the expression of the Cameroonian economist Joseph Tchundjang Pouemi! It is therefore the African countries that have long lost to the exchange rate. This continues to be the norm with the European Central Bank pursuing zero interest rate policies.
It is true that the rate of 0.75% served by the France to the Bceao and the Beac is higher than the rate at which it could finance itself on the markets. This additional cost was probably linked to the decision (of the France) contained in the reform to close the Bceao's operating account. But this situation – where the remuneration of African countries' foreign exchange reserves is higher than market rates – is the result of unconventional monetary policies adopted by the central banks of developed countries in the wake of the 2007-2008 financial crisis. This was not the case before. Moreover, as the inflation rate is higher than the rate of 0.75%, African countries also lose in real terms by placing their reserves in the operating account!
The absurdity of the situation lies in this : countries like Senegal and Côte d'Ivoire issue foreign currency debt securities at annual rates of 5-6%, when they could have made a completely different use of their foreign exchange reserves which are subject to real yields. gatives. Instead of going into debt at these prohibitive rates, they would have done better to facilitate the conditions for granting domestic bank credit. But, as a more expansive monetary policy can jeopardize the untouchable parity of the CFA franc with the euro, they are forced to live with this absurd situation.