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Crisis in the Franc Zone
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11442 |
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Section : |
CURRENT ISSUES
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| Issue
Date : |
4 / 1994 |
3,058 Words |
| Author
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L. Gray Cowan
L. Gray Cowan is senior associate for African studies at the
Center for Strategic and International Studies in Washington,
D.C. |
0n January 11, the former French colonies in Africa took a drastic step, voting--under pressure from France--to devalue the CFA franc (CFAF) that is their standard currency by 50 percent. Although devaluation of the currency is a common phenomenon in most of Africa, the move was seen as particularly critical in that it made clear to the African leaders that France was adopting a new and potentially much tougher stance toward economic mismanagement in the community.
It had been clear for several years that the CFAF had been increasingly overvalued--to the point that the African states were pricing their primary products (cocoa, coffee, and cotton, for example) out of the European markets to which they had traditionally been exported.
Discussion of devaluation had come up periodically, but the French government always stoutly denied any intention to make the West African nations take such a drastic step, arguing that it would undermine the confidence of Africans in their own economies and the African Financial Community as a whole.
Thus, the decision to reverse this policy came as a rude shock to the African leaders assembled at a conference in Dakar, Senegal; none (except Cote d'Ivoire) had come prepared with any studies dealing with the possible effects of devaluation on their country's economy. But France threatened to slash the aid of any country that did not adopt the revision.
The CFAF had been set up in 1946 as a cornerstone of the French special relationship to the overseas colonies. The rate of exchange, set at 50 CFAF to the French franc, had remained fixed for 48 years. At Dakar, the 13 West and Central African countries (Equatorial Guinea, once a Spanish colony, had joined the group) fixed the new rate at 100 CFAF to the French franc, slashing the currency's value by half.
The World Bank, the IMF, and, especially, the U.S. State Department had been pressing both France and the African states for some time to devalue. In March 1992, Herman Cohen, then assistant secretary of state for Africa, said in a speech in Paris, "I agree with maintaining the Franc Zone--but not without devaluation. The Zone guarantees financial stability, which is important, but the African countries in the Zone should not be deprived of the advantages to be gained from devaluating. The [CFAF] is overvalued by 50 percent. That's why the Cote d'Ivoire is losing its cocoa and coffee markets to Malaysia--it's just no longer competitive."
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