Neo-colonial currency allows French exploitation
By Anis Chowdhury and Jomo Kwame Sundaram
SYDNEY and KUALA LUMPUR, Aug 2 2022 (IPS) – Colonial-style currency board deals have enabled continued imperialist exploitation decades after formal colonial rule ended. These neocolonial monetary systems persist despite modest reforms.
In 2019, Italian Deputy Prime Minister Luigi Di Maio accused France of using monetary arrangements to “exploit” its former African colonies, “to impoverish Africa” and to “depart and then die at sea or arrive on our shores.
When France ratified the Bretton Woods agreements on December 26, 1945, it created the Franc Zone of the French Colonies in Africa (CFA), allowing France to update the pre-war colonial monetary arrangements.
The apparent intention of the “franc des colonies françaises d’Afrique” (FCFA) was to protect the French colonies from the drastic devaluation of the French franc (FF) necessary to peg its value to the US dollar, as agreed at Bretton Woods.
Then French Minister of Finance, René Pleven, said: “In a show of generosity and altruism, metropolitan France, wishing not to impose on its distant daughters the consequences of its own poverty, fixed different exchange rates for their change “.
In December 1958, the CFA franc became the “Franc of the African Financial Community” (still FCFA). In 1960, President Charles de Gaulle made CFA membership a prerequisite for decolonization in French West and Central Africa.
In recent years, the CFA has involved 14 countries in sub-Saharan Africa, mainly French-speaking, in two monetary unions, both using the FCFA: the West African Economic and Monetary Union (UEMOA) and the Economic and Monetary Community of Central Africa (CEMAC).
WAEMU includes Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo, while CEMAC includes Cameroon, Central African Republic, Republic of Congo , Gabon, Equatorial Guinea and Chad.
France’s “indisputable advantages”
As de Gaulle’s finance minister, Valéry Giscard d’Estaing (later president) rightly complained about the “exorbitant privilege” of the US dollar. But he seemed blissfully unaware of the 1970 report by the French Socio-Economic Council on the “indisputable advantages of the CFA for France”.
First, France could pay for imports from CFA countries with its own currency, thus saving foreign currency for other international obligations. This became particularly advantageous when the FF was weak and unstable.
Second, the French Treasury often paid negative real interest rates for CFA reserves. Thus, the CFA countries paid it to hold their foreign exchange reserves! Accumulated investment income is deployed as part of French aid to CFA countries in the form of loans repayable with interest!
But the CFA countries themselves cannot use their own reserves as credit collateral because they are held by the French Treasury. Thus, during the global financial crisis, they had to borrow, mainly from France, at commercial rates.
Third, by providing FCFA at the fixed rate, the seigniorage – the difference between the cost of issuing the currency and its face value – effectively accrued to France and the European Central Bank.
For each euro thus deposited, the equivalent in FCFA is issued and made available to the depositing country. When France joined the euro in 1999, one euro was worth 6.55957 FF, or 655.957 FCFA.
Fourth, French companies operating in the CFA were able to freely repatriate funds without incurring exchange rate risk.
The CFA economies thus effectively ceded monetary sovereignty to the French Treasury. Not surprisingly, France’s monetary control served its own economic interests, not those of CFA members.
CFA elites, French patrons
The CFA benefits not only France, but also the elites of the CFA countries. Their appetite for fake French lifestyles explains their preference for overvalued exchange rates.
The CFA also facilitates financial outflows, however illicit, as long as they do not challenge the neocolonial status quo. For decades, all manner of French governments have consistently backed these elites, often backing despotic rule.
When its interests in Africa were threatened, France unilaterally deployed combat troops and superior weaponry, always insisting on its “legitimate” right to do so.
France is said to be behind military coups and even assassinations of prominent figures critical of its interests, policies and schemes. On January 13, 1963, just two days after issuing his own currency, Togolese President Sylvanus Olympio was killed in a coup.
In 1968, six years after removing Mali from the CFA, its independence leader and first president, Modibo Keita was ousted in a coup after trying to develop its economy along more independent and progressive lines.
The more it changes, the more the same thing
When the CFA was created in 1945, the colonies deposited 100% of their foreign exchange reserves in a special “operating account” of the French Treasury. This requirement was reduced to 65% from 1973 to 2005, then to 50%, plus an additional 20% for daily foreign exchange or “financial liabilities” transactions.
Thus, the CFA states are still deprived of most of their foreign exchange earnings, retaining only 30%! Meanwhile, the Banque de France holds 90% of CFA gold reserves, making it the fourth largest holder of gold reserves in the world.
The FCFA arrangement was due to end for WAEMU countries from May 20, 2020. However, the proposed West African “eco” currency is still not yet in circulation, while the transfer of Euro reserves from the French Treasury at the West African Central Bank has not yet taken place. happen.
While only six former French colonies in Central Africa officially remain in the CFA, reform is less than meets the eye. France remains the “financial guarantor” of WAEMU, appointing an “independent” member to the board of directors of its central bank.
After its creation, the FCFA parity was set at 50 for one FF. On January 12, 1994, the FCFA was devalued by half, as requested by the International Monetary Fund and supported by France, following the fall in commodity prices and related exchange problems.
The devaluation shocked the CFA economies as the value of the FCFA plummeted by 50% overnight! This pushed up the prices of imported goods, especially food, while increasing the purchasing power of the FF.
Meanwhile, eight devaluations of FF between 1948 and 1986 against the dollar and gold also meant large losses to the value of CFA reserves. The claim that CFA countries benefited from the CFAF’s peg to a supposedly stable FF was undermined by its cumulative devaluation of 70% over this period!
No sovereignty, no development
The president of the Socialist Party François Mitterrand was no less neo-colonialist. He warned that France would become useless in the 21st century without controlling Africa.
In 2008, ex-president Jacques Chirac reportedly said: “We have to be honest and recognize that a lot of the money in our banks comes precisely from the exploitation of the African continent. Without Africa, France will slip [to] the rank of a Third World power.
Claiming to be from another generation, President Emmanuel Macron has promised to put an end to neocolonial arrangements. Yet at the 2017 G20 summit, he condescendingly declared Africa’s problem to be “civilizational”.
Such neo-colonial condescension refuses to acknowledge France’s continued exploitation of its West and Central African colonies. Clearly, the CFA currency arrangements have limited their policy space and progress.
Colonial-style exploitation therefore continued in Africa long after decolonization. Unsurprisingly, the Chadian President Idriss Deby declared: “we must have the courage to say that there is a cord which prevents development in Africa and which must be cut”.