It will be no coincidence that IMF Managing Director Ms Lagarde visited Africa where she warned that the euro crisis could have severe consequences for the world economy and therfore also for Africa. In recent months West African ministers met in emergency meetings. They wondered what measures they should take in response to the euro crisis.
Their common currency is the CFA Franc which indeed is connected closely to the Euro. This connection started at the end of the Second World War when the French Franc was plagued by constant inflation. To protect its colonies that used the French Franc as their currency, the Central African currency was created while its value was guaranteed by France.
Eight West African countries - Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo – share the so called West African CFA. They together form the African Finance Community. In addition, six Central African countries - Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon –together make up the Central African Economic and Monetary Community. Their common currency is also CFA which can not be used in the West African countries. Both currencies are guaranteed by France and since the French Franc has merged into the euro, they are guaranteed by the European Central Bank.
When in 1948 France devalued the franc, the value of the CFA became two French Francs. In 1960, 100 Old French Francs were replaced by one New French Franc. Therefore the value of the CFA franc became 0.02 New French Franc. In 1994, the CFA was devalued to 0.01 New French Franc. With the arrival of the Euro, the value of one CFA Franc was set at 0.00152449 Euros or 655.957 CFA to one Euro.
Because of the linking of the CFA Franc to the Euro it is increasingly difficult for those African countries to compete with their export products on the worldmarket. In fact they suffer the same problems as Greece, Portugal and other European countries in the Eurozone that can not devaluate anymore their currency with the aim to make cheaper their export products on the worldmarket.
Moreover, the value of many export products from those countries, such as oil, cotton, coffee and cacoa are valued in American dollars on the worldmarket. This makes the export products even more expensive on the worldmarket.
A devaluation of the CFA Franc would therefore be obvious. Rumors say that the CFA Franc will be devaluated until 1000 for a Euro. The result of this will be that the imports will become more expensive for the local population that undoubtly will affect their standard of living.