The franc zone The franc zone is an economic, monetary and cultural area that is equivalent to none other in the world. It is made up of very diverse states and territories and results from developments and changes in the former French colonial empire. After attaining their independence, most of the newly-created African states decided to remain within a homogenous group characterised by a new institutional framework and a common exchange rate mechanism. Fact Sheet The franc zone is made up of France and 15 African states: Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo in West Africa, Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea and Gabon in Central Africa, and the Comoros. The franc zone is a rare example of close institutionalised cooperation between countries from two continents that share a common language and history. The Banque de France has developed close ties with the franc zone central banks, with which it works towards ensuring the smooth functioning of the area’s shared institutions. This Fact Sheet describes the franc zone’s institutional structures and the changes they are undergoing, and brings to the fore the franc zone countries’ determination to forge ahead with regional integration in order to support growth and reduce poverty. The franc zone annual report provides detailed information on the eco- nomic and financial situation of the franc zone. It is published by the Banque de France and available on its website www.banque-france.fr n° 127 April 2002 updated July 2010 Communication Directorate 1. HISTORY OF THE FRANC ZONE 1.1. The colonial period were thus created at the start of the arrangements in French West Africa and 1920s; they were to play a key role in French Equatorial Africa and the fact Although it acquired its name relatively the organisation of financial relations that some overseas territories had been recently, i.e. in 199 with the setting up within the franc zone. granted internal autonomy. of foreign exchange controls, the franc zone was in fact created well before Nonetheless, the area only attained a Therefore, just before the French the Second World War. In the French high degree of cohesion during World colonies attained independence, the colonial empire, the currencies of the War II. The inconvertibility of the franc franc zone was a highly centralised various African territories were pegged and the setting up of foreign exchange area characterised by common foreign to the franc used in Metropolitan France, controls in 199 helped define an area exchange controls, the pooling of forming a monetary area1. within which currencies were convertible foreign exchange reserves and the free and shared common rules vis-à-vis convertibility of the currencies in the Initially, France exercised its sovereignty third countries. The Decrees of 199 area on a fixed peg basis. in its colonies by imposing the French made the franc zone official, while The exchange rates of the CFA and franc as legal tender. In the second half the monetary reform of 26 December CFP francs were fixed at FRF 1.7 and of the nineteenth century, it decided to 1945 led to the creation of the CFA (for FRF 2.4 respectively, reflecting the progressively organise local banknote France’s African colonies) and CFP (for differentiated price developments during issuance and entrusted private banks France’s colonies in the Pacific) francs the war, and later increased to FRF 2 such as the Banque de l’Algérie, — which were higher in value than the for the CFA in October 1948 and FRF Banque de l’Indochine, Banque de French franc — making it necessary 5.5 for the CFP franc in September l’Afrique occidentale and Banque des for these countries to mint their own 1949: these parities were then adjusted Antilles with this task. Generally, special coins. Up until 1967, a country was following the changeover to the new tokens were issued in return for the considered to belong to the franc zone French franc, to stand at FRF 0.020 and withdrawal of local currencies (such as if it was on the official list of territories FRF 0.055 respectively. manillas and cowrie shells) or foreign that were not subject to French foreign currencies circulating in these territories. exchange controls. 1.2. Independence By doing this, the French government Following the interruption of trade acknowledged the need to adapt relations between France and a number The attainment of independence by the distribution of credit to the local of its colonies during the war, General France’s former trust territories between environment rather than grant additional De Gaulle entrusted the Caisse centrale 1954 and 1962 did not lead to the 2 privileges to the Banque de France. de la France libre, set up in 1941, break-up of the area . In order to guarantee the quality of with the task of issuing banknotes, in France’s cooperation with its partners currency circulation, local issuing particular in French Equatorial Africa was considerably altered by the fact that banks were strictly supervised by the and Cameroon. This marked the start France recognised the franc zone sub- French government. This supervision of a move towards the transfer of the Saharan African countries’ right to have was strengthened as trade between responsibility for issuing banknotes from their own currency and issuing bank. Metropolitan France and its colonies private banks to public banks. This trend expanded. gained momentum after World War II, The agreements signed between 1959 spurred by the nationalisation process and 1962 by the franc zone member After World War I, issuing banks in Metropolitan France. The Banque countries laid down the principles acquired new bank statutes which de l’Algérie was nationalised in May governing the monetary organisation subjected them to more stringent 1946 and the Banque de Madagascar of the area up until 1972-197. This requirements and mechanisms were set et des Comores became a semi-public phase was characterised by progress in up to exchange banknotes with those banking institution in 1950. The issuing the monetary integration of franc zone issued by the Banque de France at a bank of French West Africa and Togo member countries. rate of one to one. French banknotes and that of French Equatorial Africa and In April 1959, six newly independent progressively replaced colonial tokens Cameroon were set up in 1955. and remained the only currency in West African states (Côte d’Ivoire, 4 circulation in sub-Saharan Africa and The move towards the rationalisation Dahomey , Upper Volta , Mauritania, the Pacific territories. The first comptes of the franc zone also led to the Niger and Senegal), subsequently d’opérations or « operational accounts » creation, under Article 0 of the Act of joined by Togo in 196, formed the 24 May 1951 concerning the special Central Bank of West African States Treasury accounts, of a technical liaison 1– In a broad sense, a currency area can be 2– The following countries left the franc zone: defined as the coexistence of an anchor currency committee in 1951, officially named Lebanon (1948), Morocco, Algeria and Tunisia and a number of satellite currencies. The unity of the franc zone Monetary Committee in (between 1956 and 1962), and Guinea- the area is ensured by the convertibility of all 1955. It was in charge of monitoring Conakry (1958). The states of former Indochina the currencies in the area on a fixed peg basis. monetary relations between member were provided with their own currency under the Its cohesion vis-à-vis other countries or areas terms of the Agreements of December 1954. may stem from the application of harmonised territories and co-ordinating the activities or common foreign exchange controls. A multi- of the various issuing banks. However, – Dahomey became Benin on 0 November 1975. country currency area generally requires a its role diminished as from 1958 as a broader framework with close political and 4– Upper-Volta became Burkina Faso on 4 August economic ties. result of the changes in the issuance 198. 2 The franc zone – July 2010 The franc zone – July 2010 (Banque centrale des États de l’Afrique The lifting of foreign exchange controls The parity of the CFA franc remained de l’Ouest – BCEAO) — which was in France in 1967 marked a new unchanged up to 11 January 1994 to replace the Institut d’émission phase in the history of the franc zone. when it was devalued by 50% against d’AOF et du Togo — to manage their Applying common foreign exchange the French franc common currency, the CFA franc (CFA: controls was no longer a criterion for (1 CFA franc = FRF 0.010). Communauté financière africaine). belonging to the franc zone. Since The independence of the Comoros 1968, the franc zone has been limited The Treaty establishing West African in 1976 was accompanied by the to countries that have signed monetary Monetary Union (WAMU) essentially maintenance of the issuing rights of the cooperation agreements with France covers the rules governing monetary Issuing Bank of the Comoros (Institut and whose issuing banks therefore hold issuance, the centralisation of foreign d’émission des Comores), replaced by an operational account at the French exchange reserves, the free circulation the Central Bank of the Comoros on Treasury. of currency units and the free movement 1 July 1981. The parity of the Comorian of capital within the Union. The member countries’ desire to change franc was equivalent to that of the CFA franc. In 1994, this parity was Following serious financial difficulties, annulled with the % devaluation of Mali, which had opted to set up its the Comorian franc (1 Comorian franc own issuing bank and currency, applied 1 euro = = FRF 0.01).