France is wrestling with a burden of debts and public deficits that led Standard & Poor’s recently to downgrade its credit rating. Even as the risk of recession looms, the country has been forced to implement a drastic austerity program.
However, France’s woes are also being felt far beyond its borders, sparking rumors of a possible devaluation of the CFA franc, the common currency of the franc zone, which comprises 14 African countries and the Comoros Islands in the Indian Ocean.
The franc zone is, in fact, an appendage of the French economy. The CFA franc is convertible in euros and freely transferable to France, whose companies control the lion’s share of the franc zone’s private sector and receive most of its public contracts. In effect, this is a formula for perpetual mass capital flight.
The CFA franc’s fixed exchange rate is pegged to the euro and overvalued to shield French companies from euro depreciation. However, the currency’s overvaluation also underlies the lack of competitiveness that curbs franc-zone countries’ capacity to diversify their economies, create added value and develop. Scandalously, they still have to surrender 50 percent of their foreign-exchange reserves to the French Treasury as a guarantee of the CFA franc’s limited convertibility and free transfer to France.
To curb the public deficits that such policies entail, the franc-zone countries underwent drastic structural-adjustment programs throughout the 1980s and 1990s, under the auspices of the IMF and the World Bank. The CFA franc was sharply devalued in 1994, and outstanding debts were reduced. Since then, the IMF and the World Bank have kept franc-zone budget deficits under tight surveillance, which has limited the direct impact of sovereign-debt worries on these countries.
As a result, there is no need to devalue the currency again, unless France unilaterally decides to do so, as it has several times over the past decades. From the end of World War II until the adoption of the euro, France devalued its own franc 14 times to bolster competiveness and exports, with the CFA franc devalued along with it each time.
The French economy, with its strong industrial base and dynamic private and public companies, benefited from these devaluations, thanks to increased exports (including to its former African colonies). However, the franc-zone countries did not fare nearly so well. Lacking well-developed industrial production and intra-community trade, devaluation brought them higher import prices, inflation and rising unemployment.
France has always drawn on its African reserves, especially during economic downturns. It did so in the 1930s, when the franc zone helped France to survive the Great Depression, and again during World War II, when the zone bankrolled General Charles de Gaulle’s resistance to the German occupation. Another devaluation of the CFA franc today might deflate France’s debts to the franc zone and boost its African-based export industries, but it would worsen the franc-zone countries’ miseries.
It is no wonder that the franc-zone countries have been unable to catch up with the performance of neighboring economies, most of which are undergoing the most prosperous period in their history. Since 2000, sub-Saharan African countries’ annual GDP growth has averaged between 5 and 7 percent, compared with between 2.5 and 3 percent for the franc zone. This gap should encourage the franc zone’s member countries to reject their relationship with France.
There are two ways that they might go about it. First, franc-zone countries could issue their own currencies — a radical approach that would face serious obstacles. France wields overwhelming political clout in its former African colonies, including veto power over the franc zone’s two central banks. France can thus block any move that it deems a threat to its interests. Moreover, the franc-zone countries that are small and produce no oil prefer to pool their reserves to reduce their vulnerability to external shocks.
The second way implies a thorough overhaul of the system. This would entail pegging the CFA franc not only to the euro, but also to a basket of other currencies, abolishing the fixed exchange rate and the CFA franc’s convertibility, and fast-tracking economic integration. However, as the euro’s current troubles demonstrate, a common currency requires unified and centrally established monetary and fiscal policies, which presupposes political integration — a process that is likely to be no less difficult in Africa than it has proved to be in Europe.
There is no easy answer, but it is time for the franc zone’s two leading regional groupings — the West African Economic and Monetary Union and the Central African Economic and Monetary Community — to begin playing a decisive role in overhauling the franc zone’s architecture. France may not like it, but the best interests of the franc zone’s citizens should come first.
Sanou Mbaye is a former senior executive of the African Development Bank.
Copyright: Project Syndicate
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations