From Africa Recovery, Vol.12#4 (April 1999), page 27 (box within article on the euro)

The CFA franc: new peg for a common currency

The CFA franc is the common currency of 14 countries in West and Central Africa, 12 of which are former French colonies. These 14 countries comprise the African Financial Community, which in turn is comprised of two regional economic and monetary groupings. Eight countries -- Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo -- form the West African Economic and Monetary Union (WAEMU) while six countries -- Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea and Gabon -- are linked as members of the Central African Economic and Monetary Community (CEMAC).

Each regional grouping issues its own CFA franc. The common currency of WAEMU is the franc de la Communauté financière de l'Afrique (CFA franc), issued by the Banque centrale des Etats de l'Afrique de l'Ouest (BCEAO). CEMAC's common currency is the franc de la Coopération financière africaine (also known as CFA franc), issued by the Banque des Etats de l'Afrique centrale (BEAC). Although the two CFA francs are legal tender only in their respective regions, each region's central bank maintains the same parity of its CFA franc against the French franc and capital can move freely between the two regions.

The CFA franc has been pegged to the French franc since 1948*. Only one devaluation has occurred during the history of the currency peg -- from CFA50 to CFA100 = FF1 in January 1994.

With the introduction of the euro on January 1, 1999, the French franc is fixed against the currencies of the 10 other European countries participating in the euro. Nevertheless, the member countries of the CFA franc zone and France agreed to maintain the currency peg following the euro's introduction through an arrangement with the French Treasury.

The French Treasury has retained sole responsibility for guaranteeing convertibility of CFA francs into euros, without any monetary policy implication for the Bank of France (French central bank) or the European Central Bank. While the two CFA central banks maintain an overdraft facility with the French Treasury, the amount that can be withdrawn is limited by operating rules that have applied since 1973. Each CFA central bank must keep at least 65 per cent of its foreign assets in its operations account with the French Treasury; provide for foreign exchange cover of at least 20 per cent for sight liabilities; and impose a cap on credit extended to each member country equivalent to 20 per cent of that country's public revenue in the preceding year.

The fixed parity between the euro and the CFA franc is based on the official, fixed conversion rate for the French franc and the euro set on January 1, 1999 (FF6.55957 = EURO1). As a result, the value of the CFA franc is now fixed against all 11 euro-zone country currencies. Since the CFA100 = FF1 exchange rate has remained unchanged, the CFA franc-euro exchange rate is simply CFA665.957 = EURO1.

The CFA franc is actually pegged to the euro in de facto terms from January 1999. The peg will become official in 2002 -- when France and the other euro-zone countries must completely withdraw their national currencies from circulation.

*The Comoros also pegs its currency, the Comorian franc, to the French franc and, since January 1999, to the euro. The Comorian franc was also devalued against the French franc in January 1994, by 33 per cent.

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