The CFA franc system may be on the way out

Established in 1945, 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. Since 1999, it has been pegged to the euro, giving the member states monetary stability while supporting trade with Europe.

In return, the members have to keep half of their foreign reserves in France, on which the French treasury pays 0.75 per cent interest.

A French official sits on the board of the regional central bank in both zones, and the currency is printed by France.

Here is more from David Pilling and Neil Munshi at the FT.  The French don’t like the optics it seems, and not all of the African nations benefit from losing the option of devaluing their currencies.  The nature of the replacement system, however, is not yet clear.

As an aside, occasionally you will meet people who claim this system costs the African nations hundreds of billions of dollars a year, through some kind of under-specified colonial imperialistic theft, combined with Junker fallacies I believe.  You can file that one under “Big Time Conspiracy Theories That Most Americans Are Hardly Aware Of.”  But I am, and it ain’t true: “…the current deal was actually profitable for the two African central banks because bank-to-bank credit is attracting a negative interest rate of -0.4%, but the central banks are receiving 0.75%.”

That said, if those nations are capable of running their own central banks, flexible exchange rates would indeed be an improvement.  Is this one more like public health or electricity?


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