First of all, it’s a name change. The Eco replaces the CFA franc, which initially meant “French colonies of Africa” which since 1961 has become “African Financial Community”. This name change is therefore the symbol of a regained monetary sovereignty, but we are still very far from a currency common to the 15 countries of the Economic Community of West African States ECOWAS.
With this agreement marking the end of the CFA franc, France will no longer sit on the board of the Central Bank of West African States (BCEAO). So far, the Minister of Finance and the Governor of the Banque de France have participated in the two annual meetings, one of which was held in Paris.
Second major change, the countries of the region will no longer have to deposit half of their foreign exchange reserves with the French Treasury, an obligation that was perceived as a humiliating dependence on France by detractors of the CFA franc.
On the other hand, France will continue to play its role of guarantor for this currency by maintaining a fixed parity with the euro (1 euro = 655.96 CFA francs), including in the event of depreciation of the European currency.
“It is first and foremost a request from the African States themselves, to guarantee the convertibility of the currency, allows when there are unstable situations in many countries to continue to support the economy in a certain way” asserted to RFI the deputy rapporteur of the ratification project Jean-François Mbaye. “It is an enormous financial responsibility that France will shoulder, knowing that the reserves will no longer be in the operations account of the French public treasury.” adds Jean-François Mbaye deputy LREM.
This monetary parity with the euro, however, allows European companies to benefit from monetary stability for their economic and monetary exchanges with the continent.
The Eco must eventually become a common currency for the 15 ECOWAS countries, but this would require creating a central bank, deciding on the exchange rate regime, adapting IT systems and administrations … fifteen years to go to launch the Euro.
The fall in growth in West Africa, due to Covid-19, makes it very difficult to meet the convergence criteria, concerning inflation, debt and public deficits. What is clear is that the conditions are not met for the creation of a single currency area with 15 countries.
In addition, if the countries of the franc zone fear falling into the monetary instability experienced by their English-speaking neighbors, they are also afraid of falling under the domination of Nigeria, heavyweight of the ECOWAS, with 180 million inhabitants out of 300. , and 65% of the area’s GDP. To date, given the region’s economic difficulties, there is no strong political will to move towards a single currency with 15 countries.
The preamble to the agreement ratified on December 10, 2020 by France, expressly provides for the change of denomination of the CFA franc: it will therefore be necessary, in the short term, to issue new banknotes. We don’t know when the new Eco tickets will be produced. A production which until today was the responsibility of the Banque de France.