Are Burkina Faso, Mali and Niger going to drop the CFA franc?

In September, Niger, together with its ECOWAS counterparts Burkina Faso and Mali, established a military alliance known as the Association of Sahel States (AES). Four months later, the three nations declared their withdrawal from the larger bloc due to what they deemed as “illegal, illegitimate, inhumane, and irresponsible sanctions” imposed on them following coups.

The facts

Recent reports have hinted at a potential separation from their shared currency, the West African franc (CFA). Captain Ibrahim Traore, leader of the Burkinabe transitional government, stated in a February interview, “Perhaps everything we’ve done has surprised you, hasn’t it? More changes might still surprise you. And it’s not just about currency. We will break all ties that keep us in slavery.”

Shortly after, Abdourahmane Tchiani, the Nigerien counterpart, confirmed the possibility of a significant monetary overhaul. “Currency is a sign of sovereignty… The AES member states are engaged in the process of recovering their full sovereignty. It is no longer acceptable for our states to be France’s cash cow,” he expressed in an interview with the state broadcaster.

These declarations grabbed headlines across a continent where criticism of the continued use of the CFA, a vestige of the French colonial system, is growing. However, the timing and certainty of the planned currency change remain unknown, and there appears to be a lack of uniformity in the desire for this change among the three countries.

While Economy and Finance Minister Alousseni Sanou emphasized Mali’s continued membership in the West African Economic and Monetary Union (UEMOA), some analysts expressed skepticism. They say the new Sahel alliance may not be as united as claimed, pointing out that Niger’s military coup occurred seven months ago, and leaders in Mali and Burkina Faso may be grappling with the challenges of governance, especially regarding their ties with UEMOA.

The arguments

France introduced the CFA in 1945 as the currency for its African colonies, originally standing for “Colonies Francaises d’Afrique” (French Colonies of Africa). This system granted France significant economic and political sway over its African territories by retaining control over the currency’s convertibility and monetary policy.

Despite gaining independence in the 1960s and ’70s, many former colonies retained the currency, now named “Communaute Financiere Africaine” (African Financial Community). Eight UEMOA members (Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, and Togo) still utilize the CFA. The six member states of the Economic and Monetary Community of Central Africa, under the name Central African franc, also have a similar currency: Cameroon, the Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon.

Equatorial Guinea and Guinea-Bissau, not former French colonies, were subjugated by Spain and Portugal, respectively.

Initially praised for promoting monetary stability and economic integration, the CFA faced increased criticism and anti-French sentiments following coups, especially in UEMOA states where six successful coups occurred since 2020. The military, seizing power amid rising insecurity, accused French forces of insufficient collaboration in combating armed groups.

As relations deteriorated and regional states sought new alliances, calls to sever ties with France and adopt a new currency gained traction. Proponents of the CFA argue that its peg to the euro serves as a valuable buffer against inflation, particularly given the economic challenges in the Sahel. Burkina Faso, Mali, and Niger, contributing only 8% of ECOWAS’s $761 billion GDP, are dwarfed by larger economies like Nigeria and Ghana, which have faced recessions with weakening currencies.

Critics of the CFA counter that using the perceived failures of some African monetary policies as a basis for evaluating replacement currencies reflects outdated and simplistic monetary doctrines. They assert that the creation of the CFA was not for the benefit of African states but rather to safeguard France against the ascendance of the United States dollar.

Economists argue that, from a practical economic perspective, the CFA is not advantageous for its user states. They point to a long-term analysis of the GDP per capita indicator, revealing that countries using the CFA since their independence have not experienced the anticipated development. For instance, Ivory Coast, the most economically significant country in the CFA zone, reached its peak income per capita in 1978, and Niger, which recently decided to withdraw from the Economic Community of West African States, recorded its highest income per capita in 1965.

The pegging of the CFA to the euro is detrimental to oil-producing African states, as oil is priced and traded in US dollars, a practice established in the 1970s with the petrodollar system.

Previous discussions about ending or reforming the currency system took place, with a significant development occurring in December 2019 when Ivorian President Alassane Ouattara and French President Emmanuel Macron declared the end of the existing CFA. Subsequent negotiations with UEMOA member states resulted in Paris loosening its control over the West African franc. Reforms included the removal of the obligation for the Central Bank of West African States to deposit half of its foreign exchange reserves with the French Treasury.

However, these reforms, though substantial, went largely unnoticed by mainstream society.

In response to ECOWAS sanctions supported by the European Union, Niger, facing economic challenges, took a drastic step by announcing a 40% cut in the national budget in October. This move, coupled with the inability to access regional financial markets and missed repayment deadlines due to sanctions, has led to economic and social chaos. Some argue that the extreme measures taken by Niger are a response to the hardships imposed by the sanctions, pushing the government to explore alternatives to regional integration.