No alternatives? Why monetary sovereignty matters so much to countries of the CFA Franc zone

“France, dégage!” (France, disappear!) – with this slogan, activists have been demonstrating in the streets of Dakar since December 2021. For the protesters the Franc Communauté Financière Africaine (short: CFA), introduced during French colonial rule in Senegal, is a thorn in the side. Kémi Séba, an activist from Benin, caused a stir in 2017 when he burned a 5000 CFA Franc bill during a protest. When people start burning money, something is wrong with the currency. Currently, criticism of the CFA Franc is amplified by rising prices for food and fuel are rising. Political pressure for reform is growing as inflation rises.

The reasons for high inflation in West Africa have little to do with the currency itself. Currently, countries worldwide face rising prices. Rather, the key question is: how much leverage do West African countries have to respond to inflation in the first place?

The CFA Franc: Lack of Sovereignty as Part of the Problem

There is controversy among African politicians and economists about the role of the CFA Franc in economic policy. The peg to the euro ensures an exceptionally stable currency. Compared to other African countries, government debt in CFA countries is significantly lower. And yet the CFA Franc also creates disadvantages. In terms of economic policy, the peg to the euro limits industrialization and hinders proactive state investments. In the current crisis, exacerbated by the consequences of Covid-19 and the war in Ukraine, additional problems arise. The current euro-dollar parity negatively affects debt repayment in the CFA Franc zone. Debt repayment of bonds in dollars is disadvantageous for CFA countries. In addition, the weak euro – and thus the weak CFA Franc – inflates the prices for imported goods in West Africa.

The CFA Franc is not a sovereign currency. A self-determined monetary policy, in a monetary union independent of France, could be a basis for a sustainable economic and financial policy. However, it is not a panacea.

In the current situation, calls for urgent reforms and more monetary sovereignty in West Africa become louder. There are different ideas about what reform might look like. Senegalese political economist Ndongo Samba Sylla, for example, argues that states must seek complete sovereignty over their currency. Influenced by Modern Monetary Theory (MMT), a post-Keynesian school of thought, he believes that West African states could promote a more diversified agricultural production and industrialization through a sovereign monetary policy. However, this alternative approach also shows that a sovereign monetary policy must go hand in hand with other economic policy measures. A new currency alone would change little.

A new currency demands economic and fiscal convergence

A serious macroeconomic problem complicates the reform: The introduction of a common West African currency requires economic and fiscal convergence, which does not seem to be within reach at present. Whether convergence, that is setting certain benchmarks for how high inflation or debt levels, makes sense from an economic policy perspective remains an open question. European integration, in which this mechanism is also applied, shows in the case of Greece how ambivalent the consequences of monetary integration can be.

Since the Covid-19 pandemic, the debt levels of Ghana and Nigeria, as well as of many franc-CFA countries, have exceeded the fixed convergence level of 70% of the public debt ratio. A common monetary union of all West African states is thus becoming a distant prospect. Meanwhile, it is crucial to ask what the better option for West African states would look like: a larger monetary union (pegged or not to an anchor currency) or sovereign national currencies?  

Kako Nubukpo, a Togolese economist, known as a critic of the CFA Franc, emphasizes the systematic dependence on the zone. He calls the relationship between the CFA countries and France a “servitude volontaire” (voluntary servitude). This opinion is opposed by the economist Lionel Zinsou, but also by the Ivorian president and former head of the central bank Alassane Ouattara. For defenders of the CFA Franc system, the common currency creates optimal conditions such as exchange rate stability and attracts investment from abroad. Despite the polarized debate, the current economic situation makes clear how difficult it is to find a solution to diverse economic policy problems. Even formerly opposed economists such as Nubukpo and Zinsou now emphasize that reforming the CFA Franc will not solve all problems.

Social protest against the CFA Franc

Beyond economic and monetary policy issues, however, the CFA Franc is under significant political pressure. Civil society, and especially the young population, rejects the currency. In Senegal, where one of the first French colonial banks, the Banque du Sénégal, was opened in 1855, criticism of the “neo-colonial” currency is widespread. Not only France, dégage! calls for an end to the CFA Franc. Recently, monetary sovereignty has become an issue during the parliamentary elections. Influential opposition politician Ousmane Sonko picked up the popular criticism of the CFA Franc, and his electoral success shows how important the problem is for the voters.

Nevertheless, there is a discrepancy between innovative monetary theorists like Ndongo Samba Sylla, the social protest movements and the political elite. Social protest movements are about more than the currency alone. The CFA Franc serves as a scapegoat to address price increases and social inequality or criticise the political elite and “Françafrique” relations. Macron has recognized this and wants the announced reform to be understood as a response to these criticisms.

Sovereignty matters in the current reform process because the states of the CFA Franc zone have neither economically nor politically enough room to manoeuvre. Democratic participation in the monetary politics of the franc zone is severely limited. West Africa's peripheral role in the international financial order and its structural dependence on the franc zone additionally constrain the policy space. A reform of the “corset”, which the zone appears to be, is urgently needed. This is not only overdue symbolically, but also from an economic point of view.

Robin Frisch is a research associate at the Department of African History at the University of Bayreuth. Here is a research group headed by Dr Habil. Kai Koddenbrock is researching the history and political economy of the CFA Franc.