05 April 2012
DAKAR – France is wrestling
with a burden of debts and public deficits that led Standard &
Poor’s recently to downgrade its credit rating. Even as the risk of
recession looms, the country has been forced to implement a drastic
austerity program. But France’s woes are also being felt far beyond its
borders, sparking rumors of a possible devaluation of the CFA franc, the
common currency of the franc zone, which comprises 14 African countries
and the Comoros Islands in the Indian Ocean. The
franc zone is, in fact, an appendage of the French economy. The CFA
franc is convertible in euros and freely transferable to France, whose
companies control the lion’s share of the franc zone’s private sector
and receive most of its public contracts. In effect, this is a formula
for perpetual mass capital flight. The CFA franc’s fixed
exchange rate is pegged to the euro and overvalued in order to shield
French companies from euro depreciation. But the currency’s
overvaluation also underlies the lack of competitiveness that curbs
franc-zone countries’ capacity to diversify their economies, create
added value, and develop. Scandalously, they still have to surrender 50%
of their foreign-exchange reserves to the French Treasury as a
guarantee of the CFA franc’s limited convertibility and free transfer to
France. To curb the
public deficits that such policies entail, the franc-zone countries
underwent drastic structural-adjustment programs throughout the 1980’s
and 1990’s, under the auspices of the International Monetary Fund and
the World Bank. The CFA franc was sharply devalued in 1994, and
outstanding debts were reduced. Since then, the IMF and the Bank have
kept franc-zone budget deficits under tight surveillance, which has
limited the direct impact of sovereign-debt worries on these countries. As
a result, there is no need to devalue the currency again, unless France
unilaterally decides to do so, as it has several times over the past
decades. From the end of World War II until the adoption of the euro,
France devalued its own franc 14 times in order to bolster
competiveness and exports, with the CFA franc devalued along with it
each time. The French
economy, with its strong industrial base and dynamic private- and
public-sector companies, benefited from these devaluations, thanks to
increased exports (including to its former African colonies). But the
franc-zone countries did not fare nearly so well. Lacking well-developed
industrial production and intra-community trade, devaluation
brought them higher import prices, inflation, and rising unemployment. France
has always drawn on its African reserves, especially during economic
downturns. It did so in the 1930’s, when the franc zone helped France
to survive the Great Depression, and again during World War II, when the
zone bankrolled General Charles de Gaulle’s resistance to the German
occupation. Another devaluation of the CFA franc today might deflate
France’s debts to the franc zone and boost its African-based export
industries, but it would worsen the franc-zone countries’ miseries. It
is no wonder that the franc-zone countries have been unable to catch up
with the performance of neighboring economies, most of which are
undergoing the most prosperous period in their history. Since 2000,
sub-Saharan African countries’ annual GDP growth has averaged 5-7%,
compared to 2.5-3% for the franc zone. This gap should encourage the
franc zone’s member countries to reject their relationship with France. There
are two ways that they might go about it. First, franc-zone countries
could issue their own currencies – a radical approach that would face
serious obstacles. France wields overwhelming political clout in its
former African colonies, including veto power over the franc zone’s two
central banks. France can thus block any move that it deems a threat to
its interests. Moreover, the franc-zone countries that are small and
produce no oil prefer to pool their reserves in order to reduce their
vulnerability to external shocks. The
second way implies a thorough overhaul of the system. This would entail
pegging the CFA franc not only to the euro, but also to a basket of
other currencies, abolishing the fixed exchange rate and the CFA franc’s
convertibility, and fast-tracking economic integration. But, as the
euro’s current troubles demonstrate, a common currency requires unified
and centrally established monetary and fiscal policies, which
presupposes political integration – a process that is likely to be no
less difficult in Africa than it has proved to be in Europe. There
is no easy answer. But it is time for the franc zone’s two leading
regional groupings – the West African Economic and Monetary Union and
the Central African Economic and Monetary Community – to begin playing a
decisive role in overhauling the franc zone’s architecture. France may
not like it, but the best interests of the franc zone’s citizens should
come first.