<div style="max-width: 100%;"></div>
<script src="//players.brightcove.net/1571595826001/c0AOssA7_default/index.min.js">
</script>
The proposed single currency for the Economic Community of West African States, the Eco, will be launched in 2027, replacing the CFA Franc, barring any other setbacks. According to the President of the regional bloc, Jean-Claude Kassi Brou, an agreement was reached by the 15-member regional group which will cover between 2022 to 2026. Joining CNBC Africa to discuss this development is Tilewa Adebajo, Chief Executive Officer of CFG Advisory.

ECOWAS targets 2027 for Eco single currency

By George Ott – Economist



The dual shocks of the Covid-19 pandemic and the international oil price slump are expected to cause severe damage to economies across the African continent.



Oil-dependent African sovereigns are particularly vulnerable to the associated drop in export revenues and resultant rise in currency pressures.



In this regard, there has been considerable uncertainty and speculation about the capacity of both the West African Economic and Monetary Union (Waemu) and the Economic and Monetary Community of Central Africa’s (Cemac) to absorb these shocks and to protect the value of their respective regional currency pegs to the euro.



The CFA franc (comprising the Central African XAF and the West African XOF) is pegged to the euro at CFAfr655.96/€.



Despite relative economic resilience across the Waemu region, oil-exporting members of the Cemac are coming under severe strain as international oil prices fell to decades-low levels.



Moreover, with the Cemac region still in the process of rebuilding external buffers drawn down during the 2014-16 oil price crash, the region’s capacity to absorb the massive shocks of the current global crises is expected to be limited.



With many indicators pointing towards severe strain on the CFA franc, concerns have been raised about a potential devaluation of the currency peg.



With speculation circulating in the local media across the Cemac region, both the Bank of Central African States (Beac) and the French Treasury have released statements to dispel rumours that a devaluation was on the cards.



On Tuesday, May 12, Bloomberg reported that Odile Renaud-Basso, the head of the French Treasury, affirmed the institution’s commitment to ensure the convertibility of the CFA franc, stating in a telephonic interview that they “do not see a need for adjusting the exchange rate. So that is not on the agenda”.



On the same day, Reuters quoted a statement by the Beac in which it denied that it was considering a devaluation of the CFA franc and that foreign exchange reserve levels remained “comfortable”.



With economic and financial pressures mounting on the CFA franc, there has been a measure of uncertainty pertaining to the French Treasury’s willingness to support the regional peg by ensuring the unit’s convertibility to euros at the current rate.



This commitment has not yet been tested and with economic conditions in Europe also hard hit, concern in this regard was arguably warranted.



Therefore, the French Treasury’s public backing of the peg is significant and reduces uncertainty at a time when severe pressures on the CFA franc are unavoidable.



These developments also add weight to our current baseline expectation for the CFA franc to remain pegged to the euro at the current rate of CFAfr655.96/€.



Although economic risks are set to rise across the region in the coming months, we nevertheless expect that financial assistance from multilateral organisations should have an added stabilising impact across both the Waemu and Cemac regions, with a host of member states already having received such assistance.



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

Administrators propose sales plan for SA retailer Edcon, see potential job cuts

Op-Ed: Rumours of a CFA franc devaluation in West & Central Africa dispelled

By George Ott, Economist, NKC African Economics 



On December 21, Côte d’Ivoire’s President Alassane Ouattara announced that the eight member states of the West African Economic and Monetary Union (Waemu) and France had agreed to rename the CFA franc and implement a range of reforms to the long-standing regional currency.



Although talk of change had been in the air, the December announcement came as somewhat of a surprise, certainly to some others in the region.



The
formation of an independent monetary union and the adoption of a regional
currency has been a long-term goal for the broader 15-member Economic Community
of West African States (Ecowas), of which all the Waemu states are members.
Ecowas leaders met as recently as June 2019 and agreed to adopt a common
regional currency, to be called the ‘eco’, as early as 2020. 



However,
with manifold challenges facing this project, the Waemu states appear to feel
they were already in a position to get the reform ball rolling, ostensibly with
the goal of facilitating the eventual formation of an Ecowas regional monetary
union.



Aside
from the broader Ecowas debate, the reforms announced in December to be
implemented on the West African CFA franc include: renaming the CFA franc the
eco; scrapping the obligation requiring Waemu members to keep 50% of their
foreign reserves at the French central bank; and the withdrawal of all French
representatives from decision-making and management bodies of the West African
Monetary Union (comprising the same eight Waemu member countries). 



Significantly,
however, the eco will remain pegged to the euro and the Banque de France will
continue to guarantee the convertibility of the currency.



Although
these reforms represent the most substantial changes in the more than
seven-decade history of the CFA franc, it nevertheless received a mixed
reception. 



While
some commentators hailed the move as a significant breakaway from French
involvement and a step towards monetary independence, others pointed out that
the move was largely symbolic and the reforms ‘cosmetic’, as the maintenance of
the euro peg will continue to dictate the scope of regional monetary policy
decisions.



Another
significant challenge facing the eco lies in the Waemu member states satisfying
the convergence criteria for the adoption of the new common currency. 



Key
criteria are: maintaining a budget deficit of less than 3% of GDP; public debt
ratio of less than 70% of GDP; annual inflation rate of less than 10%; and, maintaining
a minimum of three months of import cover. Currently, it appears unlikely that
the majority of the Waemu countries will meet all these criteria by the very
ambitious inception date of July 2020.



Regional
giants and fellow Ecowas members Nigeria and Ghana have also weighed in on the
developments, adopting somewhat contrasting positions. 



While
Ghana came out strongly in favour of the eco and the formation of a broader
regional monetary union (although not in favour of the euro peg but rather a
floating exchange rate), Nigeria has taken a more cautious approach in first
considering its official response.



With
anti-colonial sentiment growing in the region, this move is perhaps mostly
symbolic at this stage, and is to the political benefit of Mr Ouattara and
France’s President Emmanuel Macron. However, this does not mean that it is not
significant. 



The
long-standing Ecowas goal of establishing an independent, regional monetary
union with a single currency remains in the minds of many in the region, and
the decision by the Waemu to make the first move may yet prove to be a valuable
viability test for this ideal. 



Yet, in the meantime, with the maintenance of the euro peg, the reforms are not expected to have much of an impact on the currency, at least not in the short- to medium term. Moreover, the goal of officially moving to the eco by mid-2020 may prove to be overly ambitious.

Westafrica_Wikimedia

Op-Ed: From CFA franc to ‘eco’, what you need to know about West Africa’s new currency

<div style="max-width: 700px;"></div>
<script src="https://players.brightcove.net/1571595826001/default_default/index.min.js"></script>
Since the West African Economic and Monetary Union agreed to rename its CFA Franc to the &#8220;Eco&#8221;, Ghana&#8217;s government has indicated interest to join the West African currency, but without the planned peg to the Euro. Nigeria&#8217;s government on the other says it is still studying the development. With the currency set to kick off by the end of the year – Tilewa Adebajo, CEO of CFG Advisory joins CNBC Africa to discuss the implications.

Will West Africa realise its journey to a single currency?

ABIDJAN (Reuters) &#8211; West Africa’s monetary union has agreed with France to rename its CFA franc the Eco and cut some of the financial links with Paris that have underpinned the region’s common currency since its creation soon World War Two.



Under the deal, the Eco will remain pegged to the euro but the African countries in the bloc won’t have to keep 50% of their reserves in the French Treasury and there will no longer be a French representative on the currency union’s board.



Critics of the CFA have long seen it as a relic from colonial times while proponents of the currency say it has provided financial stability in a sometimes turbulent region.



“This is a historic day for West Africa,” Ivory Coast’s President Alassane Ouattara said during a news conference with French President Emmanuel Macron in the country’s main city Abidjan.



In 2017, Macron highlighted the stabilising benefits of the CFA but said it was up to African governments to determine the future of the currency.



“Yes, it’s the end of certain relics of the past. Yes it’s progress &#8230; I do not want influence through guardianship, I do not want influence through intrusion. That’s not the century that’s being built today,” said Macron.



The CFA is used in 14 African countries with a combined population of about 150 million and $235 billion of gross domestic product.



However, the changes will only affect the West African form of the currency used by Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali, Niger, Senegal and Togo &#8211; all former French colonies except Guinea Bissau.



The six countries using the Central African CFA are Cameroon, Chad, Central African Republic, Congo Republic, Equatorial Guinea and Gabon, &#8211; all former French colonies with the exception of Equatorial Guinea.



The CFA’s value relative to the French franc remained unchanged from 1948 through to 1994 when it was devalued by 50% to boost exports from the region.



After the devaluation, 1 French franc was worth 100 CFA and when the French currency joined the euro zone, the fixed rate became 1 euro to 656 CFA francs.



The agreement follows talks in Nigeria’s capital Abuja on Saturday between West African leaders. Countries in the CFA bloc and other West African nations such as Nigeria and Ghana have for decades debated creating their own currency to promote regional trade and investment.



The CFA franc was born in 1945 and at the time stood for “Colonies Francaises d’Afrique” (French Colonies in Africa).



It now stands for “Communaute Financiere Africaine” (African Financial Community) in West Africa and in Central Africa it means “Cooperation Financiere en Afrique Centrale” (Financial Cooperation in Central Africa).



Reporting by Ange Aboa; Writing by Alessandra Prentice; Editing by David Clarke

CFA franc

ECOWAS targets 2027 for Eco single currency

Op-Ed: Rumours of a CFA franc devaluation in West & Central Africa dispelled

Op-Ed: From CFA franc to ‘eco’, what you need to know about West Africa’s new currency

Will West Africa realise its journey to a single currency?

West Africa renames CFA franc but keeps it pegged to euro, what you need to know…

News Tips

Advertise With Us

CFA franc

ECOWAS targets 2027 for Eco single currency

Op-Ed: Rumours of a CFA franc devaluation in West & Central Africa dispelled

Op-Ed: From CFA franc to ‘eco’, what you need to know about West Africa’s new currency

Will West Africa realise its journey to a single currency?

West Africa renames CFA franc but keeps it pegged to euro, what you need to know…

News Tips

Advertise With Us

Newsletters