The franc currencies in West and Central Africa, rooted in historical colonial ties, have transitioned from being pegged to the French franc to an indirect tie with the euro. This shift reflects a lasting European influence on the continent.
While the connection to the euro provides stability to these currencies, member nations grapple with the challenges of potential constraints on their monetary policies.
According to businessday.ng, The monetary arrangement is that both the West African CFA franc and the Central African CFA franc have equal values and are interchangeable between the 14 countries.
This feature promotes fluidity in cross-border transactions and enhances economic integration within the respective regions.
The West African CFA franc
Eight West African nations, namely Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, and Togo, utilize the West African CFA franc. This currency is not only a medium of exchange but also a symbol of economic cooperation among these nations. The West African Economic and Monetary Union (WAEMU) oversees the monetary policy and issuance of this currency.
Despite sharing the same currency, the member countries have individual monetary authorities responsible for regulating their financial systems. The coordination and collaboration among these authorities ensure the stability and integrity of the West African CFA franc.
The Central African CFA franc
On the other side of the continent, the Central African CFA franc is utilized by six nations: Cameroon, Gabon, Equatorial Guinea, the Republic of the Congo, Chad, and the Central African Republic. These countries form the Economic and Monetary Community of Central Africa (CEMAC), which, like its West African counterpart, operates under a shared currency while maintaining distinct monetary authorities.
The CEMAC countries benefit from the stability and predictability that come with a common currency. The Central African CFA franc facilitates trade and economic activities among these nations, fostering a sense of unity and cooperation.
While the use of common currencies has brought about economic advantages, challenges persist. The dependence on a foreign currency — the euro — raises questions about economic sovereignty and the ability of member nations to tailor monetary policies to their specific needs.
Additionally, economic shocks in the Eurozone can indirectly impact the 14 African nations, illustrating the interconnected nature of the global economy.