Introduction – The Last Colonial Currency: A History of the CFA Franc – Part 3

I have been commissioned to write the Introduction (Preface) to the upcoming book – The Last Colonial Currency: A History of the CFA Franc – by Fanny Pigeaud and Ndongo Samba Sylla, which is an English version of the original 2018 book, L’arme invisible de la Françafrique. It will soon be published by Pluto Press (UK) – as soon as I finish this introduction. The book is incredibly important because it shows the role that currency arrangements play in perpetuating colonial oppression and supporting the extractive mechanisms that the wealthy have used for centuries to further their ambitions. It also resonates with more recent neoliberal trends where these extractive mechanisms, formerly between the colonialist (metropolis) and the occupied peripheral or satellite nation, have morphed into intra-national urban-regional divides. I am very appreciative for the chance to write this introduction for these great authors. This is Part 3 and the final part, which I will edit down to my preface for the book.

The creeping neoliberalism in the pre-euro years

Fanny Pigeaud and Ndongo Samba Sylla extend their historical analysis of the creation and operation of the CFA franc to cover the period after France joined the Eurozone.

Things didn’t improve for the former African colonies.

In fact, one might say that a nasty cocktail has emerged with the on-going currency arrangements, that allowed for the continuation of the colonial and then post-colonial oppression, to merge with the neoliberal austerity bias of the Eurozone to further limit hopes for broad-based African prosperity.

This unseemly colonial resource grab thus morphed, later, into a neoliberal regime that maintained the extraction mechanisms and increased inequality.

But it was a creeping process.

On May 28, 1975, the – Treaty of Lagos – was signed between 15 Western African nations, which established the – Economic Community of West African States (ECOWAS).

The old boundaries, defined in geographic terms by the old colonial borders, that cut “across ethnic and cultural lines, often dividing single ethnic groups between two or more states” were maintained.

The process that followed had the fingerprints of the Europeans all over it.

The intent was to create a West African clone of the European Union by creating an economic and monetary union “with a mandate of promoting economic integration in all fields of activity of the constituting countries”.

Instead, history tells us that the region has been burdened by high unemployment, a failure of school-to-work transitions for the youth, and rising poverty rates.

Far from creating prosperity, the policies that the former colonies have pursued have been disastrous.

What explains this?

The reason is simple.

The region followed the evolution of neoliberalism in the European Union, which has created an austerity-biased blanket over national prosperity there, and, in West Africa.

When ECOWAS was established, the CFA franc nations were part of the West Africa Economic and Monetary Union (WAEMU) and the other, mainly former British colonies, which joined, were part of a British West African pound zone.

However, the latter union collapsed fairly soon after Ghana gained independence in 1957, and, eventually these nations all began to issue their own currencies.

Only the CFA franc was maintained as a currency relic of the colonial era.

The initial ECOWAS Treaty proposed to introduce a single currency across the entire region. The integration plans mirrored the sorts of debates that were going on in Europe.

As in the latter case, little agreement could be reached on a specific implementation plan.

In 1987, ECOWAS launched the “ECOWAS Monetary Cooperation Programme (EMCP)”, reasserting the aim to introduce a common currency for all Member States by 2000.

The Treaty of Lagos was restated in July 1991 and the plan then was to start with ‘Stage 1’ where two monetary unions – the pre-existing WAEMU and a new union for the the mainly English-speaking nations – would operate.

Then Stage 2 would merge the two in 2000.

By 1999, little progress had been made.

The 22nd ECOWAS Summit in Lomé that year, agreed on a so-called “Two-Track, Fast-Track” approach to finalising the EMCP.

The Accra Declaration followed in 2000, with six non-CFA franc nations (The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone) agreeing to create a monetary union with a single central bank, and merge this union into a new union the following year with the CFA franc nations.

Later that year, the Heads of State of five of these nations agreed to introduce the West African Monetary Zone (WAMZ) and set up the West African Monetary Institute – to oversee the currency integration.

Now with six members (The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone), the WAMZ was seen as a vehicle for introducing the Eco, which would also eventually subsume the CFA franc used within the WAEMU.

And this is where things really went downhill.

Like the Maastricht process that preceded the introduction of the euro, all the major questions that should have been posed and answered were largely avoided.

The independent research studying the ECOWAS proposal was not supportive.

Even a 2010 IMF study concluded that a complete monetary union in West Africa would “bring about net benefits to some potential members, but modest net gains and sometimes net losses for others.” Nigeria, the dominant economy in the group, was seen to be the beneficiary, a rather pointed analogue to Germany’s position in the Eurozone.

The lessons from the failed euro experiment where the deliberate avoidance of a European-level fiscal capacity with democratic legitimacy has created the dysfunction mess that we see today were clearly not considered by ECOWAS.

In a similar way that research could not establish that the proposed European Economic and Monetary Union constituted an optimal currency area (OCA), which would have given the resulting integration more credence, the available research on West Africa has clearly revealed the Member States of ECOWAS cannot be considered to be sufficiently similar enough to justify the sharing of a currency.

One study (Bayoumi and Ostry, 1997) found that:

The results indicate little evidence that Sub-Saharan African countries would benefit in the near future from larger currency unions.

Another study Xavier Debrun and colleagues (2005: 476) found that that “Nigeria, which would have a preponderant weight in such a union … [and be] … the primary obstacle to the creation of a well-functioning and acceptable monetary union in West Africa.”

The failure to conform with the requirements of an OCA means that these nations should never consider sharing a currency and an exchange rate.

But similar to what happened in the post-Maastricht process, when the European Commission pushed ahead with the euro despite being told that it would be dysfunctional, ECOWAS also ignored the reality

And, just like in the Eurozone convergence fiasco in the late 1990s, ECOWAS pushed ahead, and in 2002, it was agreed to “faciliate the harmonization of fiscal and monetary policies by introducing 2-sets of convergence criteria (four primary and six secondary)” (ECOWAS, 2016: 4).

The convergence criteria immediately introduced the austerity bias, in the same way that the Eurozone Member States were already choking their economies before the euro was even introduced.

The convergence process could never work without inflicting massive social and economic damage, given how different the economies in the group were.

As was the case in the Eurozone, most of the ECOWAS nations failed to meet the criteria over the period leading up to the GFC, which should have told the elites that their plan for a common currency would only bring misery.

The other issue, which mirrored the experience of the European convergence period, is that in trying to meet the convergence criteria, GDP growth fell sharply and unemployment remained at elevated levels as fiscal austerity did its work, as expected.

But, despite a senior ECOWAS official describing the situation as “dismal” ((Source), the ECOWAS Commission pushed on with their plans to introduce a common currency.

In June 2019, the 15 Heads of States of the Member States of ECOWAS agreed to launch a new currency, the Eco in January 2020.

There was no chance that the nations would meet the convergence criteria and, as a consequence, ECOWAS has regularly pushed out its planned introduction date – first 2000, then 2005, then 2010, then 2014, then 2015 and now January 2020.

And in the latest incarnation, the Eco will still be pegged against the euro at a rate largely set by France, who will retain the control of convertibility with the euro.

Plus ça change, plus c’est la même!

And, just in case you get the impression this will become a success, Nigeria, the largest trading nation in the ECOWAS group (73 per cent of total exports), and channelling the bullying role that Germany plays in the Eurozone, released a statement outlining “five non-negotiable terms” for their assent to the new currency – including exchange rate flexibility and are requirement that all nations to meet convergence criteria.

Ghana is also protesting the compulsory link to the euro.

With ECOWAS consistently failing to meet its stated deadlines for the introduction of their currency plan in the past and with Nigeria calling the shots, it is not a good bet that the Eco will materialise any time soon as a functional currency.

Since Fanny Pigeaud and Ndongo Samba Sylla completed their book, there have been developments in the currency situation in West Africa.

During a visit to Ivory Coast, the French President, Emmanuel Macron announced that the CFA franc would be terminated and replaced with a new currency called the “Eco”, which although many in the press thought was some new breakthrough, was just stating existing ECOWAS policy.

Macron told the press conference in Abidjan (December 21, 2019) that:

Too often, France is perceived as taking a supremacy stance and to dress itself in the rags of colonialism, which has been a grave mistake, a serious fault of the Republic.

(actual words: “Trop souvent aujourd’hui la France est perçue” comme ayant “un regard d’hégémonie et des oripeaux d’un colonialisme qui a été une erreur profonde, une faute de la République”, a déclaré M. Macron, appelant à “bâtir une nouvelle page” – from Agence France Presse, December 21, 2019).

Ivory Coast President Ouattara elaborated that the changes would see the French government withdrawing from the management of the currency and dispensing with the requirement that the Banque Centrale des États de l’Afrique de l’Ouest (BCEO) had to hold 50 per cent of its foreign currency reserves with the French treasury.

The changes which the French President announced will only apply to the West African CFA states. It appears that no shift in attitude is forthcoming with respect to the six nations in Central Africa, which form the ‘Coopération financière en Afrique centrale’. All but one of those nations were previously French colonies.

Will the changes reduce the French control over the West African nations using the CFA franc?

The reality is that the introduction of the Eco will really change very little – out goes the CFA franc, in comes the Eco.

So what was the Macron-Ouattara announcement really signalling?

From first impression, it was a ploy by France to maintain control of the Eco process to ensure it remains part of the on-going extractive mechanism that dates back to the introduction of the CFA franc.

And Outtara is supporting Macron in trying to break the ECOWAS grip on the process because he wants to alter his nation’s constitution to allow him to retain office.

Free trade agreements and West Africa

The other way in which the vestiges of colonial oppression have continued in this neoliberal era is through the so-called ‘free trade agreement’ (EPA or ‘Economic Partnership Agreement’) between the EU and the West African nations, which will take the ‘colonial’ extraction mechanisms to another level.

This has ensured that while Africa is wealthy in resources, its interaction with the world monetary and trade systems, leaves millions of its citizens in extreme poverty – unable to even purchase sufficient nutrition to live.

In fact, the West African states are still mired in post-colonial dependency not because they lack the resources available to set out their own development path, but, rather, because of the post-colonial institutions that have been set up to maintain control by the former colonialists of those resources.

Not content to ruin the prosperity in the Eurozone, the EU has pressured some of the poorest nations in the world to adopt the same sort of failed monetary and fiscal arrangements and then go further – and sign ‘free trade’ agreements with reciprocal access.

The 2015 Report from the Swedish-based Concord Europe – The EPA between the EU and West Africa: Who benefits? – analyses the EPA and rejects the European Commissions ‘free market’ claims that it has been beneficial for West African nations.

What institutions like the European Commission, the IMF or the World Bank never admit is that the advanced nations of the world today could never have become wealthy following the strategies that they now force on to the poor nations through currency arrangements and ‘free trade’ agreements.

Dieter Frisch, a former Director General for Development at the European Commission, wrote that (2008: 38):

En effet, on ne connaît historiquement aucun cas où un pays au stade précoce de son évolution économique se serait développé via son ouverture à la concurrence internationale. Le développement s’est toujours amorcé au gré d’une certaine protection qu’on a pu diminuer au fur et à mesure que l’économie s’était suffisamment fortifiée pour affronter la concurrence extérieure. Mais un tel processus s’étend sur de longues années …

So protection from external competition, regulation, and continued fiscal support to develop infrastructure, education and health services is essential for the development process.

The very antithesis of the EPA approach.

The advanced nations all benefited from large public infrastructure spending on roads, transport, health, education, ports, energy, communications and the rest of it.

They also benefited from large public investments in skill development.

So the milieu that this ‘free trade agreement’ has been negotiated within is biased against development from the start.

When the African nations demurred, the European Union (CONCORD, 2015:3):

… threatened all the non-LDC ACP countries with loss of free access to the European market … [and] …. set a new deadline for the completion of negotiations …

Many West African nations succumbed to the threats and “decided to sign … on 30 June 2014”.

Nigeria, the largest economy, remains “opposed to the agreement … in order to protect national industries and to create local jobs for young people” and understands that it would not have legislative independence to determine its own strategy under the EPA.

CONCORD concluded that the European Union negotiated the EPA to ensure conditions were favourable to Europe and detrimental to the West African nations.

It also concluded that the claims put forward by the EU in favour of the EPA are largely false.

Most importantly, if the EPA becomes operational, it will seriously alter the fiscal positions of the West African nations such that they would be pressured to make heavy cuts to public spending, which currently supports “the building of schools and hospitals, support for family farming, and other public services” (CONCORD, 2015: 6).

The EPA is thus another vehicle where the poorer nations are prevented from using their own fiscal capacities to improve the circumstances of their people.

In fact, the West African states are still mired in post-colonial dependency not because they lack the resources available to set out their own development path, but, rather, because of the post-colonial institutions that have been set up to maintain control by the former colonialists of those resources.

Not content to ruin the prosperity in the Eurozone, the EU is pressuring some of the poorest nations in the world to adopt the same sort of failed monetary and fiscal arrangements, and, then go further and sign up to unfair ‘free trade’ agreements.

Conclusion

Fanny Pigeaud and Ndongo Samba Sylla provide a much more detailed and interesting account of the way in which the CFA franc continues the colonial control of the former African colonies than I have in this brief introduction.

They show how the colonial, then post-colonial oppression, operating through the currency arrangements, has morphed into the neoliberal austerity bias that not only cruels prosperity in the Eurozone Member States but transmits the damage from that policy stance to the poorer African states.

Importantly, they also provide readers with a progressive alternative, which mirrors Modern Monetary Theory (MMT) insights.

As they note:

A state that has its own sovereign currency has a big advantage: it can never become insolvent in its own currency. Similarly, a country that manages to set up a well-managed banking and financial system can finance important projects without having to resort to external financing …

That said, without sovereign currencies there is simply no way of achieving the ‘mobilisation of internal resources’ that various African leaders talk about as a way of reducing the share of foreign funding in their states’ budgets.

Their work, now available to an English-speaking audience, should be essential reading for all interested in monetary economics and international equity.

References:

Abrams, L. and Miller, D.J. (1976) ‘Who Were the French Colonialists? A Reassessment of the Parti Colonial, 1890-1914’, The Historical Journal, 19(3), 685-725.

T. Bayoumi, T. and Ostry, J.D. (2010) ‘Macroeconomic shocks and trade flows within Sub-Saharan Africa: implications for optimum currency arrangements’, Journal of African Economics, 6(3), 412-444.

Birmingham, D. (1995) The Decolonization of Africa, Routledge, London.

CONCORD (2015) ‘The EPA between the EU and West Africa: Who benefits?’, Spotlight Report 2015 Policy Paper.

Debrun, X., Pattillo, C.A., and Masson, P.R. (2005) ‘Monetary union in West Africa: who might gain, who might lose, and why?’, Canadian Journal of Economics, 38(2), 454-481.

Debrun, X., Pattillo, C.A., and Masson, P.R. (2010) ‘Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa’, IMF Working Paper No.10/157. July.

ECOWAS (2016) 2016 ECOWAS Convergence Report.

Frisch, D. (2008) ‘La politique de développement de l’Union européenne. Un regard personnel sur 50 ans de coopération internationale’, Rapport ECDPM 15, Maastricht.

Gwaambuka, T. (2016) ‘Revealed: How France Remains a West and Central African Colonial Master’, The African Exponent, November 29, 2016,

Gunder Frank, A. (1967) Capitalism and Underdevelopment in Latin America, NYU Press, New York.

Gunder Frank, A. (1966) ‘The Development of Underdevelopment’, Monthly Review, 18(4), September, 17-31.

Harvey, David (2000) ‘Cosmopolitanism and the Banality of Geographical Evils’, Public Culture, 12(2), 529-564.

Hopkins, A.G. (1993) ‘Blundering and Plundering: The Scramble for Africa Relived’, The Journal of African History, 34(3), 489-494.

Huws, Ursula (2019)’The Unwoke are Awake’, Damage, December 30, 2019.

That is enough for today!

(c) Copyright 2020 BIll Mitchell. All Rights Reserved.