The CFA franc comprises two currencies: the West African CFA franc (XOF) used by Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali, Niger, Senegal and Togo, and the Central African CFA (XAF) used by Cameroon, Chad, Central African Republic, Congo Republic, Equatorial Guinea and Gabon. Both currencies are pegged to the euro and guaranteed by France, in return for which members are required to hold half of their foreign reserves with the Banque de France and a French official sits on the board of both central banks (the BCEAO and the BEAC).
The CFA has been increasingly criticised as relic of colonialism, and a barrier to fiscal and monetary independence that has maintained an artificially high exchange rate and failed to boost economic growth. It proponents, however, argue that is has ensured economic stability and controlled inflation.
Beyond the symbolic change of name, two key decisions have been made between France and the WAMU. Members will no longer be required to hold reserves with the French central bank and France will no longer be represented on the Board of the new monetary authority. The peg with the euro will continue to be guaranteed by France, however. The changes will only affect the West African form of the currency; the six countries using the Central African CFA franc are expected to decide next year how they wish to proceed.
With the exchange rate remaining unchanged for the time being, eco banknotes will be issued in the same denominations as the CFA franc. The new currency will be adopted progressively by different member states as and when they fulfil the convergence criteria.
Not all will be plain sailing, however, as some members are objecting to the proposed fixed rather than flexible exchange rate, and to the requirement to deposit all their foreign currency reserves at the BCEAO.
The timetable is also considered too ambitious, and has stoked division with the five anglophone countries in the 15-member Economic Community of West African States (ECOWAS) – namely, Nigeria, Gambia, Ghana, Liberia and Sierra Leone, They want to adopt the new currency on a slower timetable and as a new currency for the whole region, not just as a replacement for the CFA franc and, together with Guinea, have issued a communique condemning the WAEMU decision to unilaterally rename the CFA franc.
It remains to be seen, therefore, whether the eco will be confined to francophone West (and Central) Africa, or does become a truly regional currency.