Consensual Rape in Francafrique Currency Markets, Gary K. Busch[/size][size=8pt]

The CFA franc will be devalued on 1 January 2012 according to several reliable sources in West Africa. This happened before, with disastrous consequences. On January 12 1994, Benin, Burkina Faso, Cameroon, Chad, Central African Republic, Comoros, Congo-Brazzaville, Ivory Coast, Equatorial Guinea, Gabon, Mali, Mauritania, Niger and Senegal were informed that their common currency had been devalued by 50%. 50 CFA francs had bought 1 French franc; now it cost 100 CFA francs. There were violent reactions in many of the countries, especially Senegal, at the loss of 50% of their purchasing power. In 2012 it will be even worse as high world prices for food, paid for in US dollars, will place imported food out of the reach of most Africans working in menial jobs, on the farms, as civil servants or unemployed.


The responsibility for this approaching disaster is the failure of the French economy to deal with its long-term structural debt and the use of French reserves to prop up the failing Euro and participate in the several bailouts within the Eurozone. French wars in the Ivory Coast and especially Libya have cut a major hole in the French pocket. Their tame African partners, the presidents of francophone African states, are complicit in this plan for devaluation and continue to follow the lead of their protectors, the French Army, in whatever they suggest. This relationship is long-standing and a paradigm of neo-colonial enterprise.

What is the CFA Franc?

There are two separate CFA francs in circulation. The first is that of the West African Economic and Monetary Union (WAEMU), which comprises eight countries (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo). The second is that of the Central African Economic and Monetary Community (CEMAC), which comprises six countries (Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea and Gabon). This division corresponds to the pre-colonial French West Africa (AOF) and French Equatorial Africa (AEF), with the exception of Guinea-Bissau, formerly a Portuguese colony, and Equatorial Guinea, formerly Spanish.

Each of these two groups issues its own CFA franc. The WAEMU CFA franc is issued by the Central Bank of West African States (BCEAO) and the CEMAC CFA franc is issued by the Bank of Central African States (BEAC). Since 1994, both currencies were pegged at 100 CFA to the French franc but, after France joined the Euro at a fixed rate of 6.65957 French francs to one Euro, the CFA rate to the Euro was fixed at CFA 665.957 to the Euro. The current plan is to peg the rate at CFA 1,000 to 1 Euro – a devaluation of about 35%.

Who is responsible for the CFA Franc?

The monetary policy governing such a diverse aggregation of countries is uncomplicated because it is, in fact, operated by the French Treasury, without reference to the central fiscal authorities of any of the WAEMU or the CEMAC states. Under the terms of the agreement which set up these banks and the CFA, the Central Bank of each African country is obliged to keep at least 65% of its foreign exchange reserves in an “operations account” held at the French Treasury, as well as another 20% to cover financial liabilities.

The CFA central banks also impose a cap on credit extended to each member country equivalent to 20% of that country’s public revenue in the preceding year. Even though the BEAC and the BCEAO have an overdraft facility with the French Treasury, the drawdowns on those overdraft facilities are subject to the consent of the French Treasury. The final say is that of the French Treasury which has invested the foreign reserves of the African countries in its own name on the Paris Bourse.

In short, more than 85% of the foreign reserves of these African countries are deposited in the “operations accounts” controlled by the French Treasury. The two CFA banks are African in name, but have no monetary policies of their own. The countries themselves do not know, nor are they told, how much of the pool of foreign reserves held by the French Treasury belongs to them as a group or individually. The earnings of the investment of these funds in the French Treasury pool are supposed to be added to the pool but no accounting is given to either the banks or the countries of the details of any such changes. The limited group of high officials in the French Treasury who know the amounts in the “operations accounts”, where these funds are invested and whether there is a profit on these investments are prohibited from disclosing any of this information to the CFA banks or the central banks of the African states.

This makes it impossible for African members to regulate their own monetary policies.

Three basic mechanisms have traditionally been used to control monetary growth in the CFA Franc Zone by the two banks operating under the instructions of the French Treasury:

·        In the central banks’ operations accounts, interest is charged on overdrafts, and conversely, interest is paid on credit balances.

·         When the balance in a central bank’s operations account falls below an agreed target level, it is required to restrict credit expansion, generally by increasing the cost to member countries of rediscounting paper with the central bank or by restricting member-countries’ access to rediscounting facilities.

·        Credit provided by the central banks to the government sector of each of their member countries can be no larger than 20% of its fiscal revenue in the previous year.

However, this tight control by France of the cash and reserves of the francophone African states is only one aspect of the problem. The creation and maintenance of the French domination of the francophone African economies is the product of a long period of French colonialism and learned dependence by African states. For most of francophone Africa, central banks are given limited power. These are economies whose vulnerability to an increasingly globalised economy is increasing daily. There can be no trade policy without reference to currency; there can be no investment without reference to reserves. The politicians and parties elected to promote growth, reform, changes in trade and fiscal policies are made irrelevant except with the consent of the French Treasury which rations their funds. There are many who object to the continuation of this system. President Abdoulaye Wade of Senegal has stated very clearly: “The African people’s money stacked in France must be returned to Africa in order to benefit the economies of the BCEAO member states. One cannot have billions and billions placed on foreign stock markets and at the same time say that one is poor, and then go beg for money.”

Why devalue the CFA Franc?

France has run out of money. It has massive public and bank debt. It has the largest exposure to both Greek and Italian debt (among others) and has embarked upon yet another austerity plan. Its credit rating is on the brink of losing its AAA status and the private banks are going to have to take a major haircut on its intra-European debts. Part of the reason it has been able to sustain itself so far is because it has had the cushion of the cash deposited with the French Treasury by the African states since 1960. Much of this is held in both stocks in the name of the French Treasury and in bonds which have offset and collateralised a substantial amount of French gilts.

The francophone African states have gradually been able to recognise that they may never see their accumulated assets again as these have been pledged by the French Treasury against the French contribution to the several European bailouts. Wade of Senegal has again been asking for accounting. None has been forthcoming. Ouattara of the Ivory Coast and Denis Sassou-Nguesso of the Republic of Congo have been told that it will be necessary to devalue the CFA francs and they have been delegated the role of informing their African presidential colleagues. Devaluation will release funds and extend a lifeline to the French Treasury, which may be called upon to bail out French banks exposed to the european debt crisis.

However, it will have a devastating effect on Africa. The last time there was such a devaluation most of French Africa  suffered badly (except for the Presidents and their friends). Devaluation is useful if you have things to export which are made relatively cheaper. However, for most of francophone Africa the goods they have for export are raw materials and petroleum. Much of their manufactured goods, their services, their invisibles come from or through France. |Large amounts of food is imported from outside Africa and is growing daily in price as is transport. There were signs of price inflation earlier this year. West African monetary zone inflation accelerated to 4.1 per cent in January from 3.9 per cent the month before.  Inflation in the eight-nation economic zone, which uses the euro-pegged West African CFA franc, was mainly due to rising food, transport, housing and communication costs. Price-growth averaged 1.4 per cent in 2010, up from 0.4 per cent the previous year. Higher prices for petrol and food drove that increase.

One of the countries which was hardest hit by the previous devaluation was the Ivory Coast. That devaluation entailed the signature between the IMF and the World Bank for an Enhanced Structural Adjustment Facility (ESAF) (1994-1996), that imposed drastic measures on the government to make  budgetary restrictions destined to straighten up the national economy – this, to no avail.

Furthermore, the “raining billions” (an exceptional, unprecedented volume of credits) encouraged bad governance in the country. The man then in charge was Deputy Managing Director of the IMF and now Ivorian president, Alassane Ouattara. He has been accused of being at the heart of deterring international financing whilst letting the Ivorians sink deeper and deeper into poverty. It was the carrying out of projects financed by the European Union, and the massive deterring of credits linked to postponing debt contracted on behalf of international institutions, that brought these same institutions to break off with the Ivory Coast in 1998. The country then sank into a depression and the growth rate reached a record low. In the year 2000, the figure was negative for the first time in the country’s history: -2.3%.

The price African states will pay for devaluation will be poverty, stagnation and increased unemployment. This unemployment and underemployment will place a crucial role in domestic stability and growth. While it is easy to see that people without jobs and hope are more willing to take more extreme positions, the economic consequences are also clear. In economics, Okun’s law refers to an empirically observed relationship relating unemployment to losses in a country’s production first quantified by Arthur M. Okun. This ‘law’ states that for every 1% increase in the unemployment rate, a country’s GDP will be at an additional roughly 2% lower than its potential GDP. Fragile African economies will find it hard to develop policies to compensate for these losses.

Although the problem is most acute in the Ivory Coast, which represented at the last devaluation 60% of the assets of the West African Pool, it is no less serious for the other states. Despite this, and the poverty it will bring to the region, there are few African presidents who are willing to renounce the Pacte Coloniale and end the terrible toll of French neo-colonialism in the region. France may have overspent its funds and bitten off more than it could chew in European debt and now foreign interventions. Surely it isn’t the job of West Africans to pay for this aberrant behaviour.

Source: http://thinkafricapress.com/economy/consensual-rape-francafrique-currency-markets

And how does this affect Nigeria ? To our North, East and West, we have these Francafrique Countries bordering us. If such a devaluation does take place expect the nations poorly protected borders to be swamped with immigrants from these areas. Implications ? The already bad situation in the North-East of the country where many of fighters are believed to have roots in these countries will be worsened with the influx of hungry desperate youth.

classic case of neocolonialism

I think it's up to the leaders of these countries to debate this, pegging CFA to the franc and now euro had brought them macroeconomic stability in form of low inflation etc but having a certain % of their reserve in French reserve is something else and thereby leaving their soverign economic planning to the French. I think financial ministers must sit and debate the pros and cons of this relationship.

Yeske,

Your reaction is normal as you may think that these african francophone countries are free to set up the economy system of their choice. The sadening reality is that none of those countries is free to have its own currency since France is there to suck their blood. They are all living under slavery regime designed by the French. This is a blattant nazi log carried over by the French to Africa from the dire time they were under Hitlerian occupation.   

Professor Laurent Gbagbo is the only one who dared address this currency issue and even planned to launch an independent ivorian currency, hence the the animosity of the French toward him, and the fate he was reserved amid all africans naive acceptance. Nigerian people, and west african anglophone people in general, don't known enough about the francophone terrain even though they're standing right beside it.  But all that derives from the plantation system into which the Westerners drowned the whole Africa continent purposedely: slaves from one plantation are formatted to know few or nothing about the conditions of the slaves in neighbouring plantations. Africans, we are moving Plantation system !!! 
I am Ivorian, but I can barely list 10 major nigerian cities, whereas I can easily draw a list of 50 french cities without blinking. Plantation System !

@Makbo, i only hope this devaluation would stir up the African francophonie spring (or winter) come january