Franc is vivid symbol that French colonialism continues in Francophone Africa
The history of money and finance in the former French colonies in Africa presents remarkable continuities, despite the political and institutional changes that occurred with the decolonisation process in the 1960s.
The most obvious symbol of these continuities is no doubt the CFA franc. The acronym of this currency created in 1945 by the French provisional government originally stood for franc of the French colonies in Africa. It still circulates in eight countries in West Africa and six countries in Central Africa without its founding principles having been altered.
To have a proper sense of the history of French monetary imperialism in Africa, one has to go back at least to the mid-19th century. With the abolition of slavery in France in 1848, the French state had to compensate French slave owners for the loss of their “movable” property.
Part of the financial compensation had been used to set up colonial banks under the authority of the Bank of France. This was the case of the Bank of Senegal, created in 1853 by a decree of Louis Napoleon. Unlike the other colonial banks whose headquarters were located in metropolitan France, the Bank of Senegal was based in Saint-Louis, in the north of Senegal.
It started in 1855 as a loan and discount bank. Being under the financial control of the Bordeaux trading houses, its role was to promote their export and import activities to the detriment of their local rivals who suffered discrimination in accessing credit. Following its dissolution in 1901, the Bank of Senegal was succeeded by the Bank of West Africa, a private bank that had a monopoly on the issuance of francs in the French colonial empire south of the Sahara.
African people had for a long time resisted the imposition of the French currency. For their trade, but also for religious purposes, they used currencies like the cowries, a shell from the Indian Ocean, and the manilla (a bracelet).
They were aware that the acceptance of the colonial currency would disrupt their trade and more importantly would make them economically subordinated to the diktats of their colonial masters. If you no longer have control over your currency as a nation, you no longer have control over what you produce, consume and exchange.
The ‘Africanization’ of the management of the Central Bank of West African States and the Bank of Central African States did not put an end to the colonial character of the monetary system. The CFA franc still functions according to the same principles and purpose established during the colonial period.
Its rigid peg to the French currency (franc then euro, from 1999) and the freedom of transfers between France and countries using the CFA franc were not abolished after independence. Similarly, the French government’s direct control over monetary and exchange rate policy is still exercised through its representation in the organs of the two central banks with a veto power that has become implicit over time, and the obligation for the latter to deposit part of their foreign exchange reserves with the French Treasury (50 percent since the mid-2000s).
The purpose of this ‘monetary arrangement’ from its origin to the present day is to maintain satellite economies that are ‘complementary’ to the French economy. That is, economies that serve as cheap sources of raw material supplies and captive outlets.
The fixed parity reduces transaction costs and protects French companies (and now all foreign companies operating in euros) from exchange rate risk. The structural overvaluation of the CFA franc, the artificially high level of its value against the reference currencies, tends to favour imports, including luxury goods, to the detriment of exports.
The fixed parity thus constitutes a kind of trade preference granted to the euro zone, since African countries cannot use their exchange rate as an instrument to boost at times the price competitiveness of their exports.
Finally, it deprives the Central Bank of West African States and the Bank of Central African States of the possibility of using the exchange rate to absorb shocks. Thus, in the event of a crisis, the need to defend the peg implies a reduction in public expenditure and credits to the economy, as well as an increased dependence on external financing flows.
Source: Tax Justice Network