Dr Babacar Sène, a Senegalese lecturer and researcher at the Faculty of Economic Sciences and Management at Cheikh Anta Diop University of Dakar, has stressed the need for “budgetary and political federalism” for West African states as a prerequisite for a viable monetary union.
“The absence of budget federalism represents the weakness of ECOWAS (Economic Community of West African States) and the Euro zone. To achieve a monetary union, we should inevitably create a homogenous regrouping policy and have a common budget. This is fundamental,” he said.
The Senegalese economist said a future West African regional currency should not be placed under the supervision of another currency as has been the case since 1 January 1999 when the F CFA was pegged to the euro, the European currency.
“I think the best thing to do is to chose a basket of currencies that allows our Central banks to fix the parity of our currency with regard to several other currencies unlike the F CFA that has a fixed parity to only one currency,” Dr Sène stressed.
According to him, this regime “would have a monetary autonomy and would shield it from any eventual exogenous economic shocks, just like the monetary policy of China”.
Dr Sène highlighted the positive elements in the Chinese example while recognizing the authority of the Central Bank, in this case, to choose the currencies that would constitute the basket of currencies and determine the mechanism of parity fixations as regards the other currencies.
“China manipulates its currency, the Yuan, as it likes and nobody can do anything about it. Its Central Bank fixes the exchange rates according to the economic interests of the country. The West wants a devaluation of the Yuan but it is powerless against the Chinese refusal,” he said.
Talking about the fixed parity between the F CFA and the euro, Dr Sène said that the main disadvantage was that it deprived West African central banks of their autonomy and means to absorb the financial shocks coming mainly from abroad.
“Central banks have no means to thwart external shocks. The choice of pegging one currency to another with a fixed parity represents a risk and also a loss of monetary sovereignty,” he observed.
He added that “monetary autonomy allows a country to have a flexible currency that is made to fluctuate as it pleases, since it is the only one to judge the need to devalue the currency or not depending on the economic environment”.
He, however, conceded that there were some advantages with the pegging of the F CFA to the French Franc. These included giving credibility to the F CFA with regard to the studies that show that countries which have fixed their currency firmly to others have registered the lowest inflation rates.
However, this guarantee of convertibility of the F CFA on the international level costs West and Central African banks the centralisation of nearly 50% of their foreign net revenue with the French Treasury.
Dr Sène criticised this arrangement and recommended an end to the parity between the FCFA and the euro.
“We should think of breaking off with the French Treasury, not only for reasons of economic independence but also for the security of our monetary system. The economic crisis that France is going through can impact negatively on our economies.”
Created in 1945 by France, the Franc of the African French Colonies (F CFA) changed its name to Franc of the French African Community in 1958, before becoming the Franc of the African Financial Community in 1960.
Guaranteed by the French Treasury, the Franc CFA is pegged to the euro, the unique European currency, since its launch on 1 January 1999 with a fixed parity.
Issued by the Central Banks of West African States (CBWAS), the FCFA is the common currency of eight countries of West Africa, namely Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.