CFA To France: We Want Our Money Back

Written by Dana Sanchez

Fourteen Central and West African countries say they want $20 billion returned that the Bank of France is holding in trust based on an arrangement dating back to French colonial rule, according to a Bloomberg report in BusinessWeek.

The money is held by the French government and earns just 0.75 percent interest to guarantee that the CFA franc, the currency used in the 14 countries, stays convertible into euros at a fixed exchange rate of 655.957, the report said.

The low interest rate is just one of the things about the arrangement that angers CFA countries, according to Bloomberg. Others include claims that being tied to the euro discourages investment, primarily serves in the interest of France, and is an idea whose time has passed.

For its part, France argues it doesn’t need the money, doesn’t own the deposits — only manages them — and that they’re a necessary evil.

The mandatory deposits started more than 50 years ago, when the then-colonies had to place all their financial reserves in the French Treasury. The deposit requirement has eased over the years and now African members must send 50 percent of their reserves to France.

The $20 billion is more than the individual gross domestic products of all but two of the countries in the CFA region, according to the 2012 Bank of France annual report, Bloomberg reports.

West African CFA members include Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, and Togo.
Central African CFA members include Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon.

CFA originally stood for Colonies Francaises d’Afrique, and now means either Coopération Finançière en Afrique Centrale or Communauté Finançière Africaine, depending on the country.

The CFA franc’s ties to the euro discourage companies from investing, said Mamadou Koulibaly, an Ivorian economics professor, leader of an opposition party and former Ivory Coast finance minister and speaker of the parliament.

“The CFA franc does not favor exports and trade,” Koulibaly said. “It does not favor industrialization. It keeps prices high. It does not make sense in a globalized world.”

The low return on the $20 billion also angers Koulibaly. The money would yield more
if it was professionally managed, he said, and the funds benefit France, which uses them to reduce its borrowing. With a debt-to-GDP ratio exceeding 90 percent, France has promised to reduce its deficit and debt, Bloomberg reports.

“The operating account was designed and formulated primarily to serve the interests of France. It is important for France and unnecessary for African countries,” said Babissakana, chairman and CEO of Prescriptor, a consulting firm in Cameroon’s
capital of Yaounde. The tiny interest rate paid out is “a state financial crime strictly contrary to the Universal Declaration of Human Rights of the U.N.”

The French Finance Ministry said the criticisms are misplaced.

The union members “own these deposits. We only manage them,” according to a spokesman who asked to remain anonymous. The $20 billion is “not a significant part of the total” of France’s cash on hand and wouldn’t make a difference in its efforts to solve its fiscal problems. “It’s not that France is necessarily wanting these funds,” said Anne-Marie Gulde, a deputy director of the International Monetary Fund Africa Department. “It’s a necessary evil for them, in order to backstop the (fixed exchange rate) of the CFA franc.”

The tie to the euro makes buying things 20-percent-to-30-percent more expensive in the CFA zone, Koulibaly said. This is a hardship for the 90 percent of people in the region who don’t have bank accounts and cannot easily convert their cash to euros. He wants an independent audit of the CFA franc and for France to be investigated by the U.N.’s International Court of Justice, according to Bloomberg.

IMF’s Gulde said being tied to the euro might make some prices higher but it also limits
inflation. “Everyone benefits from the control of inflation, including and especially the very poor.”

Compared with other countries, growth in the CFA zone has been lower in the past decade, according to a report presented to French President François Hollande in December. That’s partly because of the high costs of doing business in a currency tied to the euro and to tight credit policies in the CFA zone, Bloomberg reports.

Sanou Mbaye, a Senegalese economist and former official with the African Development Bank, said high export prices and slow growth in the union have limited investments from China, which does twice as much business in Africa as any other country.

“Exports to China and trade with China lag in the CFA zone,” Mbaye said.