CFA franc

Usage of:
     West African CFA franc
     Central African CFA franc

The CFA franc (in French: franc CFA, "cé ɛf a", or just franc colloquially) is a currency used in fourteen countries: twelve formerly French-ruled African countries, as well as in Guinea-Bissau (a former Portuguese colony) and in Equatorial Guinea (a former Spanish colony). The ISO currency codes are XAF for the Central African CFA franc and XOF for the West African CFA franc.

It has a fixed exchange rate to the euro: 100 CFA francs = 1 former French (nouveau) franc = 0.152449 euro; or 1 euro = 655.957 CFA francs.

Although Central African CFA francs and West African CFA francs have the same monetary value against other currencies, West African CFA coins and banknotes are not accepted in countries using Central African CFA francs, and vice versa.

Name

Between 1945 and 1958, CFA stood for Colonies françaises d'Afrique ("French colonies of Africa"); then for Communauté française d'Afrique ("French community of Africa") between 1958 (establishment of the French Fifth Republic) and the independence of these African countries at the beginning of the 1960s. Since independence, CFA is taken to mean Communauté Financière Africaine (African Financial Community),^[1] but in actual use, the term can have two meanings (see Institutions below).

History

Creation

The CFA franc was created on 26 December 1945, along with the CFP franc. The reason for their creation was the weakness of the French franc immediately after World War II. When France ratified the Bretton Woods Agreement in December 1945, the French franc was devalued in order to set a fixed exchange rate with the US dollar. New currencies were created in the French colonies to spare them the strong devaluation. René Pleven, the French minister of finance, was quoted as saying:

"In a show of her generosity and selflessness, metropolitan France, wishing not to impose on her far-away daughters the consequences of her own poverty, is setting different exchange rates for their currency."

Exchange rate

The CFA franc was created with a fixed exchange rate versus the French franc. This exchange rate was changed only twice: in 1948 and in 1994.

Exchange rate:

• 26 December 1945 to 16 October 1948 – 1 CFA franc = 1.70 FRF (FRF = French franc). This 0.70 FRF premium is the consequence of the creation of the CFA franc, which spared the French African colonies the devaluation of December 1945 (before December 1945, 1 local franc in these colonies was worth 1 French franc).
• 17 October 1948 to 31 December 1959 – 1 CFA franc = 2.00 FRF (the CFA franc had followed the French franc's devaluation versus the US dollar in January 1948, but on 18 October 1948, the French franc devalued again and this time the CFA franc was revalued against the French franc to offset almost all of this new devaluation of the French franc; after October 1948, the CFA was never revalued again versus the French franc and followed all the successive devaluations of the French franc)
• 1 January 1960 to 11 January 1994 – 1 CFA franc = 0.02 FRF (1 January 1960: the French franc redenominated , with 100 "old" francs becoming 1 "new" franc)
• 12 January 1994 to 31 December 1998 – 1 CFA franc = 0.01 FRF (sharp devaluation of the CFA franc to help African exports)
• 1 January 1999 onward – 100 CFA franc = 0.152449 euro or 1 euro = 655.957 CFA franc. (1 January 1999: euro replaced FRF at the rate of 6.55957 FRF for 1 euro)

The 1960 and 1999 events were merely changes in the currency in use in France: the relative value of the CFA franc versus the French franc / euro changed only in 1948 and 1994.

The value of the CFA franc has been widely criticized as being too high, which many economists believe favors the urban elite of the African countries, which can buy manufactured goods cheaply at the expense of farmers who cannot easily export agricultural products. The devaluation of 1994 was an attempt to reduce these imbalances.

Changes in countries using the franc

Over time, the number of countries and territories using the CFA franc has changed as some countries began introducing their own separate currencies. A couple nations in West Africa have also chosen to adopt the CFA franc since its introduction, despite the fact that they were never French colonies.

• 1949: French Somaliland (Djibouti) leaves and begins issuing its own francs
• 1960: Guinea leaves and begins issuing its own francs
• 1962: Mali leaves and begins issuing its own francs
• 1967: Réunion leaves for French franc
• 1973: Madagascar leaves (in 1972, according to another source) and begins issuing its own francs, which ran concurrently with the Malagasy ariary (1 ariary = 5 CFA francs)
• 1973: Mauritania leaves, replacing the franc with the Mauritanian ouguiya (1 ouguiya = 5 CFA francs)
• 1974: Saint-Pierre and Miquelon leaves for French franc
• 1984: Mali rejoins (1 CFA franc = 2 Malian francs)
• 1985: Equatorial Guinea joins (1 "franco" = 4 bipkwele)
• 1997: Guinea-Bissau joins (1 "franco" = 65 pesos)

European Monetary Union

In 1998, in anticipation of Economic and Monetary Union of the European Union, the Council of the European Union addressed the monetary agreements France has with the CFA Zone and Comoros and ruled that:

• The agreements are unlikely to have any material effect on the monetary and exchange rate policy of the Euro zone
• In their present forms and states of implementation, the agreements are unlikely to present any obstacle to a smooth functioning of economic and monetary union
• Nothing in the agreements can be construed as implying an obligation for the European Central Bank (ECB) or any national central bank to support the convertibility of the CFA and Comorian francs
• Modifications to the existing agreements will not lead to any obligations for the European Central or any national central bank
• The French Treasury will guarantee the free convertibility at a fixed parity between the euro and the CFA and Comorian francs
• The competent French authorities shall keep the European Commission, the European Central Bank and the Economic and Financial Committee informed about the implementation of the agreements and inform the Committee prior to changes of the parity between the euro and the CFA and Comorian francs
• Any change to the nature or scope of the agreements would require Council approval on the basis of a Commission recommendation and ECB consultation

Institutions

Strictly speaking, there actually exist two different currencies called CFA franc: the West African CFA franc (ISO 4217 currency code XOF), and the Central Africa CFA franc (ISO 4217 currency code XAF). They are distinguished in French by the meaning of the abbreviation CFA. These two CFA francs have the same exchange rate with the euro (1 euro = 655.957 XOF = 655.957 XAF), and they are both guaranteed by the French treasury (Trésor public), but the West African CFA franc cannot be used in Central African countries, and the Central Africa CFA franc cannot be used in West African countries.

West African

The West African CFA franc (XOF) is just known in French as the Franc CFA, where CFA stands for Communauté financière d'Afrique ("Financial Community of Africa"). It is issued by the BCEAO (Banque Centrale des États de l'Afrique de l'Ouest, i.e. "Central Bank of the West African States"), located in Dakar, Sénégal, for the 8 countries of the UEMOA (Union Économique et Monétaire Ouest Africaine, i.e. "West African Economic and Monetary Union"):

•  Benin
•  Burkina Faso
•  Côte d'Ivoire
•  Guinea-Bissau
•  Mali
•  Niger
• Sénégal
•  Togo

Central African

The Central Africa CFA franc (XAF) is just known in French as the Franc CFA, where CFA stands for Coopération financière en Afrique centrale ("Financial Cooperation in Central Africa"). It is issued by the BEAC (Banque des États de l'Afrique Centrale, i.e. "Bank of the Central African States"), located in Yaoundé, Cameroon, for the 6 countries of the CEMAC (Communauté Économique et Monétaire de l'Afrique Centrale, i.e. "Economic and Monetary Community of Central Africa"):

•  Cameroon
•  Central African Republic
•  Chad
•  Republic of the Congo
•  Equatorial Guinea
•  Gabon

In 1975, Central African CFA banknotes were issued with an obverse unique to each participating country, and common reverse, in a fashion similar to euro coins.

Equatorial Guinea, the only former Spanish colony in the zone, adopted the CFA in 1984.

See also

• Economy of Africa
• Comorian franc
• Currencies related to the euro
• CFP franc

References

External links

• History of the CFA franc
• Franc zone information at Banque de France (in English)
• (French) Franc zone information at Banque de France (in French, but more extensive than the English version)
• Decision of the Council of Europe on 23 November 1998 regarding the CFA and Comorian francs
• "For better or worse: the euro and the CFA franc", Africa Recovery, Department of Public Information, United Nations (April 1999)

Other

• Central Bank of Madagascar
• (French) Passé et Avenir du Franc C.F.A.
• The CFA franc zone and the EMU