Franc Zone

Franc Zone (CFA), monetary union embracing all those countries and groups of countries whose currencies have been linked to the French franc at a fixed rate of exchange, who have agreed to hold their reserves mainly in the form of French francs, and whose currencies are now linked to the European single currency, the Euro. The Franc Zone has its origins in monetary arrangements established in the late 1940s between France and its colonies in Africa. It evolved towards its present form in the 1960s, in the immediate aftermath of the independence of the majority of the colonies. Today, the Franc Zone groups France with all but two of its former central and west African colonies, that is: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, the Republic of the Congo, Côte d’Ivoire, Gabon, Mali, Niger, Senegal, and Togo. Guinea and Mauritania were short-lived members, as were Mauritius and the former French north African colonies of Algeria, Morocco, and Tunisia. Mauritius had been the only one of the former French east African colonies to join. However, in 1976, a year after independence, the Comoros became a member. Equatorial Guinea, a former Spanish colony, joined the Franc Zone in 1985. Guinea-Bissau adopted the CFA franc to replace the Guinea-Bissau peso in April 1997. The other members are the French overseas departments and territories.

The Franc Zone has four currencies. The Euro is used in metropolitan France, in the overseas departments of Guadeloupe, French Guiana, Martinique, and Réunion, and the overseas territories of Mayotte and St Pierre and Miquelon. The Euro, which was introduced on January 1, 2002, replaced the French franc as legal tender in these areas. The CFA franc is used in the states of former French Equatorial and West Africa, which are grouped into two currency areas: the Central African Economic and Monetary Community (CEMAC), where CFA stands for Coopération Financière en Afrique Central; and the West African Economic and Monetary Union (UEMOA), where CFA stands for Communauté Financière Africaine. In January 2002 the CFA franc was pegged to the Euro at a fixed rate of 655.957 CFA francs to 1 Euro. The Comoros franc is used in the Comoros where it replaced the CFA franc in 1981. In January 2002 the Comoros franc was pegged to the Euro at a fixed rate of 491.96775 Comoros francs to 1 Euro.

The CFP franc is used in the overseas territories of New Caledonia, French Polynesia, and the Wallis and Futuna Islands, and was pegged to the Euro in January 2002 at a fixed rate of 119.253 CFP francs to 1 Euro; CFP stands for Comptoirs Français du Pacifique. Currency is issued by the central banks of the CEMAC and the UEMOA, by the Central Bank of the Comoros, by the Bank of France, and by two issuing authorities for the French overseas departments and territories. All the currencies, however, are backed by the French Treasury and are freely convertible with the currencies of countries outside both the Franc Zone and those European Union states that use the Euro. The CFA Franc Zone countries are thus virtually the only countries in Africa to have freely convertible currencies.

For some 45 years, the fixed exchange rate between the CFA franc and the French franc remained unchanged at 1 French franc equals 50 CFA francs. However, from the mid-1980s there was increasing pressure both from France and from the International Monetary Fund for devaluation, partly to improve the export competitiveness of the CFA franc states, but also, in the case of France, to cut costs to the French Treasury. This pressure was resisted until January 11, 1994, when the 13 countries using the CFA franc announced the devaluation of the currency by 50 per cent against the French franc. At the same time, the Comoros franc, pegged since 1988 at 1 French franc equals 50 Comoros francs, was devalued by 33 per cent.

The Franc Zone has long been a major channel for French aid to its former African colonies, and in recent years has begun to develop into more than a purely monetary union. In 1990 member governments agreed to develop economic union with integrated public finances and common commercial legislation. In 1991 the creation of a regional statistical and economic research body was approved. In 1992 an agreement was signed to establish a common regulatory body for the insurance industry; in April 1995 a common insurance code was adopted. However, at the start of the 21st century the political instability of CEMAC nations, compared with the relative economic and political stability of UEMOA nations, has led to questions arising over the continuing viability of the two zones maintaining their unity.