Source: Regular News Update From Eurostep No. 256 18 January 2002

DEVELOPMENT EXPERTS POINT OUT DANGERS OF THE IMPACT OF THE EURO ON AFRICAN CFA CURRENCY

An IPS (Inter Press Service) report illustrates divergent view between the French central bank and development experts on how the new EU currency – the Euro - will impact on the CFA, the currency adopted by 14 West and Central African countries. The CFA, which used to be tied to the French franc, was automatically tied to the euro from 1999 when France joined the Euro zone.
A spokesman for the Banque de France, the French central bank, argues that this link “has provided the country members of the CFA with a stable currency, and helped create a climate favourable for foreign investment and trade. The French central bank now foresees an increase in inter-regional trade with the coming of the Euro currency. The EU is already the main trade partner of the CFA countries. Almost 70 per cent of all regional exports go to the EU. The region buys more than 60 per cent of foreign goods from Europe.
However development expert and economist, Philippe Fremeaux states that the linkage to a hard currency brings its own difficulties. “African economies are structurally weak, and the
hard currency is a burden that degrades their competitiveness.” The CFA countries are obliged to maintain, “a high fixed exchange rate incompatible with the productivity of the regional economies and that weighs down their potential for economic growth.”