Evolution of African Currencies Part I: the Franc Area
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Evolution of African Currencies Part I: The Franc Area With the coming of independence, African countries have been con- fronted by the need to organize and concert a rapid evolution in their currencies. In this article an account is given of developments in the franc area. An account of the sterling area, and of unattached cur- rencies, will appear in the December issue of Finance and Development. ./. V. Mlddek N 1944, at the time when the monetary fu- members of the sterling area. Ethiopia had I ture of the world was being discussed at created its State Bank and was preparing the Bretton Woods, the map of Africa showed four introduction of the Ethiopian dollar, replacing independent countries—Egypt, Ethiopia, Li- foreign currencies and the long-used Maria beria, and the Union of South Africa. The Theresa thaler. Liberia, which, despite the law bulk of the continent consisted of colonies, of 1935 creating a Liberian dollar, in fact protectorates, trusteeship territories, and de- depended on the use of foreign currencies, had partments administered by six European pow- just replaced the West African pound by the ers and the Union of South Africa. U.S. dollar as the main medium of payment. In each dependent territory a traveler would Africa at that time presented a rich variety find either a European currency or a special of currency arrangements. Egypt and South local currency issued by one of a variety of Africa had national currencies and were full agencies, some of them located in Europe. Under the colonial regimes, the dependent Mr. Mladek is Director of the Central Banking Service in the Fund, and until re- territories were closely linked with the metro- cently was in charge of the Fund African politan financial, banking, and monetary sys- Department. He has occupied various other tems. Metropolitan countries were the major positions in the Fund, including that of Ex- sources of investments and credits, but also ecutive Director and Director of the European depositories for the dependencies' assets; the Office in Paris. Before joining the Fund he served in the Czechoslovak Ministry of Finance values of "dependent" currencies were an- and was Director and Commissioner of the chored in metropolitan currency units and, with National Bank of Czechoslovakia. some exceptions, followed the adjustments of the metropolitan currencies' rates. The finan- 81 ©International Monetary Fund. Not for Redistribution Finance and Development AFRICAN COUNTRIES IN THE FRANC AREA Equatorial African and Cameroon Currency Union West African Currency Union Other Countries of the Franc Area 82 ©International Monetary Fund. Not for Redistribution Evolution of African Currencies cial ties were not the only factor responsible independence in the last five years, 1960-64. for the channeling of an important proportion Some of the new countries emerged with cur- of each area's trade toward its metropolitan rency systems already modernized, but with market. In many dependent territories the the advent of independence the monetary re- trade organization itself was an offspring of lationship between the metropolitan countries metropolitan firms, or consisted of agents and the new states has been subject to further whose experience was limited to their country mutations. At present, Africa is in the midst of origin. The tastes and habits of the of a transition marked by a search for new for- European expatriates and settlers, sometimes mulas reflecting various postulates, some of adopted by a part of the indigenous popula- them rather conflicting. tion, kept up a demand for metropolitan prod- It is not the purpose of this article to dis- ucts. cuss projects which themselves are as yet some- The concentration of trade and payments in what vague and uncertain. The aim is simply the intra-area channels had assumed a new to describe the changes which have already significance in the 1930's, when international occurred, the dissolution or adaptation of in- trade began to struggle with formidable ob- stitutions, and creation of new ones, and to structions of import and payments restrictions point out—hopefully without resorting to a and tariffs. Viewed against this growth of bar- crystal ball—some trends that appear to come riers in international transactions, the monetary to light. areas continued to enjoy internal liberal trade and payments regimes. After the war, when Two kinds of monetary organization are the world was even more severely partitioned particularly typical in Africa, and we shall pay by payments and import restrictions, the rela- particular attention to the question of how tive freedom of payments between the mem- they are affected by recent developments. These bers of each area and the preferential treat- two kinds of organization are monetary areas ment of imports originating in it was one of the and currency unions. Currency unions are ar- most relevant features of the monetary areas. rangements under which two or more countries The discriminatory aspects of import regimes share the same currency; monetary areas are varied, however, from one area to another and groups of countries having special relationships in some instances from one territory to another. with a currency not their own—in Africa, the Certain territories, for instance, enjoyed a par- French franc or the pound sterling. At present, out of the 35 independent states, 27 are mem- ticular international status forbidding discrimi- nation in foreign trade. bers of monetary areas. About a half of the African states are members of currency unions. The Coming of Independence All countries and territories belonging to cur- rency unions are also members of a monetary The 1950's witnessed the first accessions to area. independence in Africa. Libya became sover- eign in 1951, Morocco and Tunisia in 1956, We shall, first, examine relationships within Ghana in 1957, and Guinea in 1958. The the areas and unions, and later describe the majority of the African countries have attained history of currencies which have been detached 83 ©International Monetary Fund. Not for Redistribution Finance and Development from such multinational organizations. This bank, with headquarters in Paris: the Banque review will be confined to independent coun- de 1'Algerie et de la Tunisie. In the autumn of tries, although it is impossible to avoid men- 1958 Tunisia created a bank of its own, the tioning certain dependent territories which have Banque Centrale de Tunisie, and issued its monetary arrangements with sovereign African new currency, the dinar, equal to 1,000 old states. Tunisian francs. Independent Morocco lived for a while with FRANC AREA its internationally organized Banque d'Etat du At present 17 African countries are mem- Maroc created by the Treaty of Algeciras. The bers of the franc area. French Somaliland is Moroccan franc was substituted for the peseta not part of it, the Djibouti franc being freely of the Spanish Northern Region, and Tangier and directly convertible into any currency; as was stripped of its free exchange privileges. In a result, in French exchange regulations this 1959 a new institute of issue, the Banque du territory is included in the dollar area. Maroc, fully owned by the Moroccan state, was The natural subdivision in the African part created and began to issue the dirham, at the of the franc area appears to be between the rate of 1 dirham per 100 Moroccan francs. North African (Maghreb) group of countries, Both the new Tunisian and Moroccan cen- the CFA franc sub-area, Madagascar, and Mali. tral banks faced from the very outset serious balance of payments crises which had been Maghreb Group building up for some time. In the postwar Although Algeria acceded to independence years French loans, grants, and expenditures six years later (1962) than Tunisia and had been strongly underpinning the balance of Morocco (1956), the currency regimes in these payments position of the two countries, and three countries already show considerable so for several years had private capital imports. similarity. Each of the three countries started After 1953, the tide changed. Private funds with all the characteristics of full-fledged mem- began to flow out and the balance was main- bership of the franc area: free transferability tained more and more precariously by French within the area, free trade with the area, re- spending and aid, and later by U.S. aid. The strictions on payments to, and imports from, strong tensions prevailing in North Africa, the the countries outside the area, settlements of war in Algeria, the exodus of the European foreign exchange transactions through the Paris population, the tapering off of French aid, the exchange market, reserves held in French reduction in French expenditures, and the francs (the Banque d'Etat du Maroc was devaluation of the French franc at the end of under statutory obligation to hold a part of 1958, all contributed to a heavy imbalance in its reserves in gold), and exchange rates pegged the two countries' payments with France. to the French franc. All the three units were Tunisia preferred not to follow the devaluation at par with the French franc. of the franc, whereas Morocco did devalue For about two years after Tunisia's accession after some delay. Both countries, however, in to independence, the Tunisian and Algerian 1959 introduced restrictions on payments to currencies continued to be issued by the same the franc area, other than on those connected 84 ©International Monetary Fund. Not for Redistribution Evolution of African Currencies with trade. Certain imports from the franc As this article is concerned with currencies of area are now restricted, but the import regime independent states only, we shall leave out of favors the area exporters. A number of Tuni- our survey the three currencies circulating in sian and Moroccan products continue to enjoy French insular dependencies.