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Is The CFA Franc An Asset Or A Handicap For Africa?

Is the CFA Franc an asset or a handicap for Africa?

France requires African banks* to deposit half of their foreign exchange reserves as collateral in exchange for the guaranteed convertibility of the CFA franc.

As the value of the CFA franc is determined by the value of the Euro, the Euro is a very (too) strong currency and just like in Europe the value of the Euro puts our exporters at a disadvantage and encourages imports.

It is therefore the same for the CFA franc, which severely handicaps the start of Africa “CFA” as an offshore outsourcing platform.

Advantage of a strong CFA is its stability and the financial stability it provides to the countries of the CFA zone*.

Yet some, such as the Togolese economist Kako Nubukpo, claim that this stability only benefits the richest, as the poorest do not have access to credit at rates that are too high.

Others such as Luigi Di Maio, the Italian Minister of Economic Development, believe that the CFA is responsible for immigration, unemployment and impoverishment in these countries.

Having worked at the BIA (Intercontinental Arab Bank – Libyan and Algerian Bank) and the Banque Belgolaise (Belgo-Congolese Bank), I personally think that it is the opposite: Africa is suffering from a crisis of confidence and liquidity that the CFA manages to compensate. What would be the interest rates for inter-bank borrowing or refinancing without the CFA? Probably more than double, which would end up suffocating the African economy.

 

*Central banks of the Economic Community of Central Africa (CEMAC) and the West African Economic and Monetary Union (WAEMU).

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