Leave the CFA, the ultimate option of development for

Franc zone countries(PAZF)

Presented by Daouda Lawa tan TOETaipei, December 5th 2015

1. Presentation of the CFA

2. Macroeconomic analysis of PAZF (countries using the

franc)

3.Board of directors: Issue for African’s economy

4. Analysis of the fixed parity

5. Analysis of the free transferability

6. Analysis of the free convertibility

7. Analysis of the centralization of foreign currencies

8. Some solutions

Outlines

Give me the power to create money and I’ll laugh at who makes laws

Mayer Rothschild

Presentation of the CFA

The CFA is the currency of 15 African’s countries divided into 3 groups

Created on December 26, 1945 by Gal DE GAULE

MALI SENEGAL NIGER BURKINA FASO IVORY COST TOGO BENIN GUINEA-BISSAU

CAMEROON CENTRAL AFRICA CONGO GABON EQUATORIAL GUINEA CHAD

COMORES

West Africa: BCEAO Central Africa: BEAC Comores: BCC

Creation of CFA : December 26 1945 1 F CFA = 1.70 FF ( CFA stronger than FF)

Devaluation of France franc (FF) :October 17 1948 1 FCFA = 2.00 FF(CFA stronger)

Introduction of the new France franc(FRF) : December 27 1958 1 F CFA = 0.02 FRF

50 % devaluation of CFA : January 11 1994 1 F CFA = 0.01 FRF

Securing the CFA to EURO : January 1 1999 1 € = 655.957 F CFA

Presentation of the CFA

Chamalières

Presentation of the CFA

PAZF

Macroeconomic analysis of PAZF Among the 49 least developed countries (LDCs), 35 are in sub-Saharan

Africa (SSA) . The franc zone represents 12% of the African population , 12% of GDP and 1.5 % of exports.

With a population 25% larger than that of France and a lot of raw materials, the franc zone countries represent 4.5% of French GDP or 1.5 % of money supply.

Bank financing in Ivory coast ( first countries in the franc zone in term of GDP) is about 16% against about 70% in Tunisia ( country out of the CFA zone).

in terms of life expectancy within the franc zone countries , Togo (63 years) , Benin (62 years) and Gabon (61years ) occupy the top place. Countries that have achieved very early in their monetary sovereignty have higher life expectancies than the three countries mentioned above. These are examples of Tunisia (74) , Algeria (73 ), Morocco (72) , Mauritius (72) and Cape Verde (72).

Rank Countries GDP/capita ($)1st Guinea-Equatorial 110812nd Gabon 83953rd Congo 30754th Cameroon 10715th Ivory coast 10166th Senegal 9647th Chad 7438th Benin 6739th Mali 649

10th Burkina-Faso 59011th Guinea-Bissau 49812th Central Africa 46913th Togo 44114th Niger 3

Countries Real GDPl ($billions) GDP/capita(dollars)Algeria 159 4478Angola 85,8 4812

Botswana 12,5 6796Ghana 15,3 646Kenya 32,4 888

Morocco 91,7 2868Mauricia 9,4 7303Namibia 11,5 5454Nigeria 206,7 1324Soudan 65,9 1643Tunisia 43,9 4160Zambia 15,7 1286

Using the CFA Not using the CFA

Source : Le Monde , international economic situation, 2011, p. 91

Macroeconomic analysis of PAZF

Source: IMF, 2015

1 Burundi2 Central Africa3 Malawi4 Gambia5 Madagascar6 Niger7 Libéria8 Congo9 Guinea10 Togo11 Guinea-Bissau12 Afghanistan

13 Uganda 14 Mozambique15 Erythree16 Burkina Faso17 Mali18 Sierra Leone19 Ethiopie20 Benin21 Comores22 Rwanda23 Nepal24 Haïti25 Senegal

11/15

Macroeconomic analysis of PAZF

25 poorest countries

Economic policy

Fiscal policy

Monetary policyMonetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault (bank reserves).

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy

Policy used in various combinations to direct a country's economic goals

Central Bank of West Africa(CBWA)

BCEAO16 African and 2

French

Central Bank of Central Africa(CBCA)

BEAC12 African and 2

French

Central Bank of Comores(CBC)

BCC4 African and 4

French

Decisions mode

Unanimity

Decisions mode

Unanimity

Decisions mode

At least 5

Board of directors: issue for economy

Businesses

Central Bank

Commercial

Bank 1

Commercial

Bank 2

Commercial

Bank 3

Commercial

Bank 4

Commercial

Bank 5

Commercial

Bank 6

French African

France limit the credit to slow down the economy through their presence in the board of director

Board of directors: issue for economy

Ratio credit/ GDPUSA= 200%UE= 100%PAZF=23%

WAEMU banks are over liquid but the economy suffer of

problem of funding

Analysis of the fixed parity

the parity of the CFA with the euro is fixed and defined for each subarea. The currencies of the Zone are convertible between each other to fixed parities, without limitation amounts .

No control of the monetary policy

Less competitive on international market (CFA depend on EURO)

Not able to export the raw materials in other countries

Revenue fluctuate according to the value of EURO

Analysis of the fixed parity

France

PAZF

Before devaluation1EURO = 500 F CFA

France

PAZF

Before devaluation1EURO = 1000 CFA

France control African’s economy

Analysis of the fixed parity

500 000 TON of uranium1000 EUR 500 000 TON of uranium500 EUR

Transfers are in principle free within the Zone. Within each sub- zone and between each subarea and France.

Analysis of the free transferability

Free transferability: France buys everything in Africa (PAZF) for free ( zero dime)

Analysis of the free transferability

The free transferability encourages capital flight from Africa to Europe (especially France) . According to UNCTAD, capital flight in 30 African countries since independence is

more than 400 billion US dollars. According to Hugon (1999, p.99 ), it is estimated bleeding of capital out WAEMU to

3 billion francs in 1991 to 4.6 billion in 1992 and 5 billion francs in the first six

months of year 1993. Speculative investments made in francs CFA by France between January 1990 and

June 1993 had amounted to 928.75 billion CFA francs , or about 1.416 billion euros. The amount of unrequited non-African households out of the franc zone countries

towards France and RDM has increased from $ 89 million ( in 1970) to 434 million (

in 1993). The cumulative amount of remittances is estimated at 3,783,600,000 dollars ( 2.2 trillion CFA franc) .

Analysis of the free transferability

the convertibility of currencies issued by various issuing institutions of the Franc Zone is guaranteed without limit by the French Treasury .

Analysis of the free convertibility

The convertibility of the CFA franc is more virtual. BCEAO CFA and BEAC CFA are not convertible between each other, which does not encourage the development of trade between the two areas . Instead, the mechanisms of the franc zone facilitate financial and commercial relations between the metropolis and the territories while eliminating the exchange rate risk between the two currencies (Euro and CFA franc) .

Analysis of the free convertibility

The Naira is not a convertible currency Yet Nigeria is an economic giant ;

Also the rupee is not convertible yet India is an economic powerhouse .

African countries are obliged to deposit 50% of their export revenues (currencies they got from export) in France.

Analysis of centralization of currencies

Each central bank of the franc zone has an operations account with the French Treasury

and has to deposit part of their currency reserves. Since 2005, 50% of foreign exchange reserves should be stored on the account of

operations in France (until 2005 this percentage was 65%). So there are currently about

8000 billion CFA francs from the BCEAO and BEAC stored to the Treasury, more than

12 billion euros.

CFA Users

France

Other countries without CFA

Example: USA

African international trades benefit to France

Analysis of centralization of currencies

Bank of France

African’s wealth8000 Billions CFA526 Billions Gold

50%

France control African’s political system

Analysis of centralization of currencies

Create the Single African Currency (MUA)

Ivory Coast , with its 60 % of the money supply and 40% of WAEMU's GDP , can play a decisive role in the liquidation of the CFA franc in favor of the birth of a typically African currency controlled by and for the Africans

Africa ranks first in the production, export and possession of reserves of gold , diamonds , cobalt , vanadium , manganese, chromium and partinium . MUA must be guaranteed by the synthetic value of these raw materials.

Africans may request payment in part, for their trade with the rest of the world, in their own currency which necessarily will grow in value because its demand will be stronger than its offer.

MineralsAfrican % of world

production

African production

Rank

African % of global reserves

ranking African reserves

Platinum 54% 1 60+% 1Gold 18% 1 42% 1

Chromium 40% 1 44% 1Manganese 28% 2 82% 1Vanadium 51% 1 95% 1

Cobalt 18% 1 55+% 1Diamonds 78% 1 88% 1

African resources and mining production (2004)

Source: USGS

The creation of the African Central Bank

  AFRICA USA CHINA JAPAN EURO Zone RUSSIA INDIA

               

GDP 1 081 13 162 2 645 4 368 10 637 987 912Number of CB 40 1 1 1 1 1 1

GDP 27 13 162 2 645 4 368 10 627 987 912

Current / Africa 1 488 97 161 393 36 34

Source: World Bank, World D

A single African Central Bank (ACB ) [for housing the MUA] must be created. this single ACB will end the monetary balkanization and ridiculous atomization of African Central Banks .

South Korea and China in 1960 had each a relatively lower standard of

living than in many countries like Ghana, Kenya and Ivory Coast. Today,

these two Asian countries are leading because they actually understood

and applied the method of local processing of raw materials

Local processing of all the African raw materials

Hypothesis

Hypothesis H1 H2 H3 H4 H5 Selling price/kg in

Europe (€) 200 200 200 200 200

Reeduction 1/2 1/4 1/8 1/16 1/32Selling price/kg (after

reduction (€) 100 50 25 12,5 6,25

Quantity (kg) 1,410 ,000 ,000 1, 410 ,000, 000 1, 410 ,000, 000 1, 410, 000, 000 1,410 ,000, 000 Incomes (Billions €) 141 70.5 35.25 17.625 88.125

Incomes (Billions FCFA) 92, 489.937 46,244.968 23,122.484 11,561.245 5,780.6210

Ivory coast state budget (Billions CFA) 2,000 2,000 2,000 2,000 2,000

Equivalent in year (1) 46.2 23.1 11.5 5.8 2.8 Public debt in Dec 31. 2007 (Billions FCFA) 7,397.234 7,397.234 7,397.234 7,397.234 7,397.234

Total debt reimbursement 12.5 times 6.2 times 3.1 times 1.5 times 0.8 times

Source: Hypothesis Professor AGBOHOU For example, the table shows clearly that if the Republic of Ivory Coast transforms its entire annual production of coffee and cocoa , it could not only put out in less than a year all his debts , but would also consistent financial means to feed decently all populations in sub-Saharan Africa.

Local processing of Coffee and Cocoa (Ivory coast)

Thanks for listening