CFA Franc: "The sovereignty of a country cannot be judged by its currency"

For the Congolese Minister of the Economy, African States must strive to build real competitive economies, rather than worrying about having each their own currency. This does not prevent it from suggesting changes in the monetary policy of the CFA zone, in particular the shift from fixity to the euro to controlled flexibility.

For more than a year, no day has passed without the Africans of the West African Economic and Monetary Union (UEMOA) and the Central African Economic and Monetary Community (CEMAC) talking about the CFA franc. They do it from every angle: bad money, the cause of economic disappointments, good currency, guarantee of macro-financial stability, currency with colonial hints, currency for the future despite everything, etc.

These lively exchanges indicate, at the very least, their interest in the economic future of their countries. However, we can deplore the fact that misdirected, the debate goes in all directions, and we come to wonder what if this debate is worthwhile.

It seems appropriate to return to the economy and limit the debate to three issues that we consider fundamental:

• Does each country in Africa have an interest in independently creating and managing its own currency?
• Will a currency other than the CFA franc contribute to the development of countries that are today in the franc zone?
• Which foreign exchange regime to adopt? Fixed parity or free fluctuation?

1. Money is not to be considered as the expression of national sovereignty

The sovereignty of a country cannot be judged by its currency. A nation, a community of people on a territory, can dispose of a currency of its own, without being sovereign for all that. On the contrary, a nation can share a currency with others, without having control, and at the same time, have the ability to decide and act alone in several areas that confer a certain sovereignty.

The Democratic Republic of Congo, which has its currency, is no more sovereign than France, which has a common currency. The opposite is just as true. The United States of America, with its dollar, is no less sovereign than the Federal Republic of Germany, which shares the euro with eighteen other countries.

At birth, money has never been associated with the consideration of sovereignty. History teaches us that the main functions attributed to money have been and remain:

• The intermediary for trade: the currency is used to pay for goods and services put on sale
• The unit of account: the currency acts as a standard of the value of goods and services exchanged
• Value reserve: money is a purchasing power that can be accumulated for later use

From antiquity to the beginning of modern times, only objects universally accepted as payment for goods or services could be used as money. We are far from considerations of national sovereignty.

It is in this same universalist spirit that the new international monetary system was born, following the Bretton Woods Conference of July 1944, based on gold as the international reference currency, the "Gold Exchange Standard".

All national currencies were then defined in relation to gold. There was no question of national sovereignty in monetary matters. Today, in the era of the great globalization of trade, wanting a proper currency to assert national sovereignty is simply nonsense.

2. A currency other than the CFA franc does not contribute to development

As proof, Guinea (in 1960), Mali (from 1962 to 1984), Madagascar (in 1972) and Mauritania (in 1973) who had left the franc zone to issue their own currency, are not, to date , more developed than most countries in the franc zone. In addition to Mali, which returned to the zone in 1984, Equatorial Guinea (in 1985) and Guinea-Bissau (in 1997) joined the franc zone, thus preferring, for their development, the common currency to the national currency.

African countries that had their own currency and have a monetary policy since the first year of their independence are not developed today. More than fifty years have already passed. From all over Africa, only South Africa, with its history, sits on the G20, the group of the most developed countries in the world.

Evidence from time to time suggests that the majority of African countries each issuing their own currency have often experienced high inflation and destabilization of their domestic financial system. Faced with the continued fall in the price of their currency, many have not hesitated to change the currency or the name of it, trying to artificially revaluate it.

Monetary policy is an integral part of economic policies, but it alone does neither development nor underdevelopment. In truth, for a good accompaniment of the development or not, there are only good or bad rules of management of the currency which import. Not the currency itself let alone its supervisory authority.

If for the CFA franc, it is the definition of the management rules agreed with France which poses a problem, then one can conclude that a simple dialogue between the authorities concerned will solve the problem. There is no need for endless debate on the subject.

3. Yes to the controlled flexibility and not the free float of the CFA franc

Men have always tended to look for the stability of their currency. At Bretton Woods in 1944, for example, the founding fathers of the post-war monetary system aimed, among other things, for lasting international monetary stability. Each of the 44 signatories of the agreements pledged to maintain its currency for an indefinite period in a range of values ​​close to that of gold. And the exchange rate between currencies of different countries was fixed.

Even with the end in 1971 of the Bretton Woods agreement and the new Kingston (Jamaica) agreements of 1976, the member countries of the International Monetary Fund were committed to promoting a stable exchange rate system.

Many economists believe that the fact that the United States of America has allowed its currency to float freely since August 1971, with large variations - from one to two - downward or upward, is at the origin of several economic crises around the world. The economic crisis of 1973 is attributed to the sharp decline of the dollar and that of 1998, in Asia, to the sharp rise of the same dollar.

Starting from this international experience, one can only be inclined to prefer the stability of the CFA franc to its free floating.

Stability does not exclude controlled flexibility. There are good reasons to complain about the fixity of the CFA franc against the euro. Hence the need to advocate margins of flexibility, allowing ad hoc adjustments of the CFA franc. This could be a downward adjustment of 5 to 15%, to make the products of the franc zone countries sold in Europe more competitive, or upwards in the same proportions, with a view to reducing the cost of imports in from Europe.

The Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC) would be given the task of determining the flexibility margins and would consider whether to apply them in any direction as part of the implementation of the monetary policy.

The economist Jean-Baptiste Say had said, in 1803, "money is only a veil", because it only facilitates transactions without any real impact on the functioning of the economy. The so-called Keynesian economists had told him, more than a century later that monetary variations led, through interest rates, to changes in investment and thus in output and employment. Today, this seems right to us.

Money is not neutral in relation to the economy. However, to have a good currency that positively influences the economy; we must first have a real economy, solid, well structured and competitive.
African states must therefore strive to build real competitive economies, fortify them by diversifying them a little more each day, rather than worrying about each having a currency.

by Gilbert Ondongo, Minister of state, minister of economy, industry and public portfolio of the Republic of Congo; research professor at the Marien Ngouabi University of Brazzaville