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Articles What Makes the CFA Franc Zone a Special Form of Monetary Integration ? Souleymane NDAO* to the overall stability of their competitive positions. Given that the currency was issued Summary: by supranational central banks and that France experienced a relatively high stability The CFA franc zone is the most notable of the price level throughout the 1980s, the example today of a regime change in which countries of the CFA franc zone managed sovereign countries are united not only to use to achieve discipline and credibility in the the same currency unit, but also to add value implementation of their macroeconomic to that of another monetary unit in a fixed policies. relationship. In some important respects, this In addition, the external guarantee zone differs from other monetary unions, mechanism credits, in the form of overdrafts including emerging unification of the European to operations accounts with France, helped currencies, so the traditional criteria applied mitigate some of the effects of the deterioration to identify the optimal monetary zones are of the positions of net foreign assets. Therefore, not sufficient to assess its performance. if the collective well-being depends primarily on It is indeed difficult by using only traditional price stability and growth, belonging to the area criteria to argue that the African franc zone is a has obviously been beneficial to those countries. natural monetary area: the intraregional trade However, the collective well-being also depends is quite limited, the structure of production on the balance of the external accounts, and varies across the different countries due to if the nominal exchange rate can be modified the massive shocks produced by the terms to cushion the adverse shocks caused by of trade in the past two decades, which had a the terms of trade without undermining the different impact on the countries of the region authorities credibility and financial stability, the and factors mobility does not seem to be net benefits of membership in the area are less sufficient to make up for these differences. obvious. The arguments in favour of specific Key words: CFA franc zone, African provisions to transform the CFA franc zone monetary cooperation, France. is based on two grounds, the area combines JEL Classification: F45 F55 O11 the features of a monetary union and those of a zone with fixed exchange rates. Due to the 1. Introduction fact that all African countries participating in the area have a very well developed he CFA franc zone consists of a group trade with France and with other European Tof countries of Central Africa and West countries, pegging their currencies to the Africa whose currency was be pegged to the French franc, now in euro, has contributed French franc at a fixed parity in 1948, and to * CRIISEA, Université de Picardie Jules Verne, Amiens, France ; [email protected] 491 What Makes the CFA Franc Zone a Articles Special Form of Monetary Integration? the euro since 2002. Today this is the most Section IV summarizes the main conclusions. notable example of an exchange system in 2. Evolution of the franc CFA zone which sovereign countries are united not only to use the same monetary unit, but also to The CFA franc zone has its roots in the attach value to that of another monetary unit French administration colonies before and in a fixed relationship. immediately after the Second World War. The area differs in important respects In fact in the 1930s, France took action to from other monetary unions, including the establish monetary units in each colony, and unification of European currencies and the link them to the French franc. In 1945 at the traditional criteria that identify the optimal end of the war, many of these monetary units monetary areas. Most studies carried out were unified to become either ‘the free French to determine the efficiency in the area have colonies of Africa’ or CFA or CFP French generally focused on the viability of the fixed colonies of the Pacific. The Central Fund exchange rates. Those that emphasize the for French Overseas Territories (CCFOM) importance of low inflation are in a favorable created during the war to replace the french position. Those that attach more importance banknotes issued during the occupation was to international competitiveness are critical. set up to ensure franc CFA emission. Yet, the problem has another dimension. The principles governing the wider franc Indeed, if the monetary area is not optimal, area included a) the convertibility into French Franc CFA Countries members needs may vary from one member country francs at fixed parity, b) the guarantee of to another. This paper aims to make an convertibility by French Treasury through objective assessment these two aspects. the „operations accounts» for the two Why Franc CFA area is different to the African central banks, c) the free movement other monetary zones of capital in all the area, d) the deposit of This paper attempts to make an overview 50% of foreign currency reserves to the of the relevant features of the member states French Treasury and e) the elaboration in the area and to describe the nature of its of a trade policy and a common financial institutions (Section II). It then moves on to policy vis-à-vis the rest of the world. These analyze the various economic factors that different principles comprise the specific can help determine viability (Section III). mode of governance of the area. 492 Economic Alternatives, Issue 4, 2016 Articles Initially, the CFA franc zone covered a late 1967, the parity of the Malian franc significantly larger geographical area than was equal to that of the CFA franc, but the its current area, and its origins are largely currency was not convertible. From 1967 political, not economic in nature. to late 1984, the parity was maintained However, from the mid-1970s the area independently vis-a-vis the French franc (at comprised more than a limited set of 100 Malian francs for 1 French franc) and countries due to the withdrawal of several convertibility was guaranteed through an Member States, mostly scattered in other account of separate operations open in the parts of Africa. books of the French Treasury. The official Thus the Saint Pierre and Miquelon absence of the Mali franc zone during the islands off the coast of Newfoundland in the second period has therefore been the main North Atlantic were part of the CFA franc practical consequence allowing a country to zone until January 1973, the date on which manage its own Central Bank and prevent they adopted the French franc. Another the exchange rate of its currency (as legal overseas department, the Reunion Island, tender) fluctuate. adopted the French franc in 1975. The It can therefore be argued that the CFA Comoros created their own currency in 1981 franc zone has evolved into a group of (the Comorian franc), which is still to be countries, whose ties are looser than before pegged to the French franc. and are more of a political nature. These territories, as well as other After an initial period characterized by a territories of the franc zone, could have certain instability, in October 1948 the CFA been included in the analysis hereinafter. franc’s exchange rate was fixed at 0.5 CFA The main goal of their omission is to focus franc for French franc. This rate has not the analysis on a relatively homogeneous changed since 1994. The CFA has always group of countries. been freely convertible in Frenc francs (now Other countries also pulled out of the in euros) with an established parity, and the area - Djibouti in 1949, Guinea in 1958, Mali degree of mobility of capital vis-a-vis the rest in 1962 until the renewal of its accession in of the world has been determined primarily 1984, Madagascar in 1963 and Mauritania in by the evolution of capital control in France. 1973 - ans adopted independent currencies. The CFA franc zone’s original institutional In 1985, Equatorial Guinea became the structure was no longer appropriate first country in the region that had not had when the Member States gained their colonial ties with France (and the first non- independence at the end of the 1950s and French speaking country). in the early 1960s. For a detailed account of the history of The area comprises both, the eight (8) the franc zone, see the work of Yansane members of the west African monetary (1984) and the following references, Bloch- Union (WAMU) that have a common Laine et al. (1956), Neurrisse (1987), St. central bank - the Central Bank of West Mark (1964) and Vizy (1989). Giulia (1988) Africa States (BCEAO), and a common - analyzes the 1955-1975 period. The monetary currency - the Franc of the institutional structure that was in place prior African Financial Community. The area to the major 1974 reform is described in also includes the other six (6) African the studies of FKI (1963, 1969). Regarding countries, whose common central bank is the emergence of the area›s modern the Bank of Central African States (BEAC) economic structure, see Bhatia (1985) and and common currency unit - the franc of McLenaghan et al. (1982). From 1962 to Financial Cooperation in Central Africa. 493 What Makes the CFA Franc Zone a Articles Special Form of Monetary Integration? In the central area of ​​Africa (BEAC), These accounts were remunerated the common central bank issues an in French francs previously, now in Euro. identifiable monetary unit for each France guarantees the convertibility in part Member State, though the respective by allowing Central Banks to have access to monetary units are legal tender and have its overdraft facilities.

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