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Why do some African countries use the CFA franc even if it means that they need to pay France money to be able to print money for their economies?

Strictly speaking, the CFA franc is the name given to two currencies used in the African Financial Community. In West Africa, eight countries share the common currency known as the West African CFA franc: Benin, Burkina Faso, Ivory Coast, Guinea Bissau, Mali, Niger, Senegal and Togo. The central bank is located in Dakar. The Central African CFA franc is the common currency in six other countries: Equatorial Guinea, Gabon, Cameroon, the Republic of Congo, Chad and the Central African Republic.

Both currencies have existed since 1945, when they were both linked to the French franc. At the moment, one euro is worth approximately 656 CFA francs. The French central bank guarantees the value of both currencies. In return, the African countries are required to deposit 50 percent of their currency reserves in Paris.

https://www.dw.com/en/the-cfa-franc-in-west-africa-time-for-a-change/a-44348656

Is there a particular political reason why a lot of African countries chose to remain under the CFA system other than protection against economic shock, which is not a political reason? Because to me, it doesn't really make any sense.

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  • Re 656 valuation... please note that this is probably due to the Ancien Franc being the starting point of the CFA. The French Franc got converted roughly 6.5-7 to the Euro in 99 when the Euro became legal currency. However... this was the Franc Nouveau. Waaay back in the 60s something, France converted all its Francs from Ancient Franc to Nouveau Franc (or Franc Lourd, IIRC). This of course begat decades of people saying something like c'est 400 francs for something like a croissant => a 60 Euro croissant. What they meant was 400 Ancien Francs. Even TV/radio hosts would do this 8-/
    – Italian Philosophers 4 Monica
    Commented Jun 15, 2021 at 23:27
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    I think the question is good (+1) but it might need a bit of polishing. In particular it's strange to say that "it doesn't make any sense", as if the protection against economic shocks should be dismissed as negligible: I don't know if it's worth the cost, but it's certainly the main reason why any country chooses to peg their currency against another stronger one.
    – Erwan
    Commented Jun 16, 2021 at 0:19
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    @ItalianPhilosophers4Monica indeed, the fixed exchange rate for the euro is exactly 6.55957 French francs, and the CFA francs are today pegged at exactly 655.957 to the euro. The factor of 100 arises from the devaluation, as you note, that occurred in January 1960. So the use of "at the moment" in the quoted source material is misleading; the euro hasn't been worth any other amount of CFA francs since before the euro came into being. The exchange rate history is available at en.wikipedia.org/wiki/CFA_franc.
    – phoog
    Commented Jun 16, 2021 at 12:55
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    How is "protection against economic shock" not a political reason? It's economic of course, but has vast political impact. It might help to clarify what kind of explanation you want.
    – Stuart F
    Commented Jun 16, 2021 at 14:56
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    @phoog: the move from ancien franc to nouveau franc was a redenomination, not a devaluation
    – WoJ
    Commented Jun 16, 2021 at 21:57

2 Answers 2

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Depositing is not exactly “paying”. In fact, the Banque de France paid interest on that money and is currently transferring it back to African central banks (as part of a broader transition out of the system you describe). The so-called “centralization” of currency reserves was designed as a counterpart for the fixed exchange rate and total convertibility. The notion is that the French treasury needed a way to gauge the state of each country's currency reserves and assess the risk it was assuming by extending this guarantee.

In practice, it means that France promised that anyone holding CFA Franc could receive French Francs and then Euros at the advertised rate. It also means that if a state using the CFA Franc was unable to pay for imports with foreign currency, France would step in. Clearly, that guarantee is not trivial and is one reason why these African countries would consent to rather onerous requirements.

Historically, it was of course part of a system of post-colonial dependence orchestrated by France for its own benefit (and that of the local elites) including economic and security/military agreements, foreign investment and government contracts, and more covert influence in both directions (some French politicians benefited from illegal campaing funding from African leaders who in return had a real influence on the French government). That could be regarded as an additional political reason both for the long existence of this system and for its recent reform. Most former French colonies were part of this but Guinea famously wasn't.

Whether that's a good idea politically or economically is another question. There are many reasons why pegging your money to another currency or to a metal is a bad idea. That's equally true for countries doing that unilaterally (say Lebanon or Argentina), quite apart from the peculiar setup of the CFA Franc. On the other hand, if you do want to maintain a fixed exchange rate, having the government of the larger and more stable economy vouch for it would protect you from the kind of crisis Lebanon is facing right now.

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  • "There are many reasons why pegging your money to another currency or to a metal is a bad idea": don't these costs come with benefits? Surely there must be; otherwise it wouldn't be such a popular thing to do.
    – phoog
    Commented Jun 16, 2021 at 13:03
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    @phoog Yes of course. I don't find them compelling in general but I cannot say that I am a specialist. I have the feeling that it isn't that popular anymore, most countries moved away from that over the 20th century, at least those that could. My point was more than the reasons to object to the system were not mainly related to the role of the Banque de France and this deposit obligation and the real policy choice is between fixed exchange rate and free-floating currency. I added a sentence to clarify this.
    – Relaxed
    Commented Jun 16, 2021 at 13:52
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Frame challenge:

If your local currency is nonexistent or very weak (bad convertibility, inflation), most of your economy likely be USD-based, so you will need to buy those dollars from the USA, likely on worse conditions than France offers for CFA franc. Argentine now faces this with its push to use USD instead of Argentinean peso.

Before the end of gold standard, you actually need to hold gold to have your economy function. So you needed to sell stuff for gold first, to have any on you to participate in (monetary) economy.

So I assume that CFA franc fills the niche between a fully sovereign currency (such as the use of Chinese Yuan in China) and a complete dependency on a foreign currency you do not control (such as USD use by Ecuador).

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