‘Colonial tax’ or important currency stability? Debate rages over CFA Franc

An article on Turkish news site World Bulletin and shared on Facebook reports that a colonial tax is still being collected in former French colonies in Africa. The article quotes Mawuna Remarque Koutonin, who is identified as the editor of English language site Silicon Africa.

According to this and other reports quoting Koutonin, France’s central bank (Banque de France) holds the national reserves of 14 African countries and forces them to contribute “500 billion dollars every year” to the French treasury as payment for their “colonial debt”.

The articles claim that these countries are obliged through a colonial pact to use “France colonial money” and put 85% of their foreign reserves under the control of the French minister of finance. 

The 14 countries mentioned are all members of the CFA Franc zone, which consists of two monetary unions, the West African Economic and Monetary Union, and the Central African Economic and Monetary Union, as well as Comoros

The monetary unions both use interchangeable currencies named the CFA franc, which is pegged to the euro, while Comoros uses the Comorian franc, which has a different exchange rate to the CFA franc but is also pegged to the euro.

The use of French-guaranteed currencies in African countries has become controversial.

But are any of these countries being forced to pay a “colonial tax” to France?

CFA franc zone

The CFA franc zone was created by France in 1939 and the CFA franc officially became legal tender in the French colonies in 1945. Guinea and Mali are notable examples of former French colonies that chose to create their own currencies after independence. 

In 1999 the franc was pegged to the European Union’s euro with the backing of the French treasury. It had previously been pegged to the French franc.

In exchange for the guarantee of a more stable currency and unlimited convertibility into any currency, the countries in the franc zone are “required to deposit at least half (100% for Comoros)” of their foreign exchange reserves with the French treasury. 

There have been a number of fact-checks, especially in French media, of claims that members of the CFA franc zone are forced to pay a colonial tax. 

The French newspaper Le Monde published a fact check of Koutonin’s claims in 2017. According to Le Monde, Koutonin mistakes the foreign reserve deposits which members of the CFA Franc zone make to the Banque de France for some kind of “colonial tax”. 

The check also notes that these countries did not repudiate this system as they came into independence. 

Cote d’Ivoire President Alassane Ouattara, an economist, has been reported describing the system as solid, appreciated and well managed.”Other leaders have plumped for a regional currency to end the debate.

In a statement to the German broadcaster Deutsche Welle, the French finance ministry also denied allegations that it was using the CFA deposits to trade or make any kind of profit for France.

But the differences run deep – should one country hold half of another’s foreign reserves, or in this case, those of several countries? Or has the currency stability helped economic growth?

It is a debate that is a matter of strong opinion. – Naphtali Khumalo


 

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