Tuesday, November 13, 2018
France and the countries of the franc zone, the question of the development of our respective States is a pressing one. Hence the relevance of the guarantee of convertibility and the fixing of the exchange rate among other issues
This is the issue addressed by Ndongo Samba Sylla, economist and researcher at the Rosa Luxembourg Foundation and Fanny Pigeaud, independent journalist and contributor to Médiapart in the book entitled: « The Invisible Weapon of Françafrique; a history of the CFA franc », presented to the public last Saturday, as part of the monthly activities of the Arcade called « Saturday of the Economy ».
Raising the debate and reflection on the monetary challenge of the CFA franc, is a prejudicial issue to the development of our states and will undoubtedly allow us to better understand that the issue is of importance especially in terms of development than in terms of advantages and disadvantages of the currency. It is this invigorating reading of monetary thought that Fanny Pigeaud, independent journalist and Ndongo Samba Sylla, economist, in charge of programs and research at the West Africa office of the Rosa Luxembourg Foundation, propose to users of the CFA franc, through a book entitled: « The Invisible Weapon of Françafrique; a history of the CFA franc ».
The book was officially launched last Saturday in Dakar as part of the monthly activities of the African Research and Cooperation for the support of endogenous development (Arcade), called « Saturday of the economy ».
First of all, the Senegalese economist pointed out on this issue that talking about the sovereignty of the Central Banks of the franc zone (Bceao-Uemoa, and Beac-Cemac) in terms of monetary policy is the least of the problems.
Because, according to him, the statutes (mechanisms) that make the CFA franc happy are locked. Thus, according to him, « We are told that France guarantees the unlimited convertibility of the CFA franc, a dirty word. In plain English, this means that if each of the Central Banks (Beceao, Beac) were to see its foreign exchange reserves run out (dollars, euros, yen), the French Treasury would arrange to lend them its euros at will. And so, our reserves are of little use to us. Hence the relevance of the effectiveness of this CFA franc guarantee?
However, this reality has rarely been effective. And for proof: « Since the devaluation of 1994, until now, France has not lent a single penny to the Central Banks. Because the accumulation of all our reserves (Senegal, Ivory Coast …) can ensure our operations abroad. So, no French guarantee ». The second thing that was previously explained is that « France is represented in the Central Banks (CB) through the boards of directors and monetary policy committees.
Better still, it arrogates to itself the right of veto. Previously, this was explicit, but now it has become implicit. Because to modify the statutes, unanimity is required. But ordinary decisions are taken by a simple majority. And there the Africans have the majority. But at this level the statutes are already locked ». Therefore, « on certain issues, it is not possible to decide, let alone deliberate on anything ».
Symbolically, we are the ones financing France
Continuing his development, he indicates that « France, sitting in the Central Banks, has given itself the means to put in place surveillance ratios. To put it plainly, France guarantees that if our reserves ever reach 20% of monetary issuance, we will never reach that ceiling.
Systematically, these surveillance ratios ensure that reserves do not fall below 20%. And to get around this, very often, it engages restrictive policies (credit tightening policies) to avoid these situations. In the end, in a symbolic way, we are the ones who finance France, even if this is less significant in relation to the French budget. Because we deposit our reserves there by paying a small commission and France uses them as it pleases. »
It is the Africans who guarantee their own currency to the French Treasury
The prejudicial question is what France is doing in the CFA system when it does not guarantee the currency. This is a question that economists and politicians must ask themselves. Moreover, to be convinced, says the researcher: « In the budget law of the French budget, section agreement of monetary cooperation (Bceao, Beac, and Central Bank of the Comoros), and under the guarantee of convertibility, it is registered zero. In other words, France never plans to guarantee the CFA franc in the event that our reserves are exhausted.
And when such a situation arises, there are only two options: appeal to the International Monetary Fund (IMF) or devalue the currency.
As proof, he points out: « In 1994, if France had exercised its guarantee, it would never have devalued. And every time we talk about devaluation, France is exempt … This means that it is a scam.
The convertibility guarantee is a sham
Beginning with France’s counter-narrative on the convertibility guarantee, the economist suggests this: « To boast of having the best currency in the world that France itself does not guarantee is nonsense. » And in this regard: « Many economists have not looked into it. This leads us to say that the guarantee of convertibility does not exist, it is a fake ».
The real interest rate is negative
Since the international financial crisis, the Central Banks of rich countries have initiated policies of zero interest rates to boost credit in order to revive the economies. And it is this framework that « the European Central Bank (ECB) has set its rates, and it is from a rate that the ECB that we remunerate our reserves to the French Treasury. This rate called marginal lending facility, is the overnight rate at which the Central Bank lends liquidity to banks. It is the highest rate, but at this rate, the banks will always get the liquidity they need. And this interest rate was 0.25% in 2011, then raised to 0.75% between the francophone African countries and the French government regularly.
And inflation in the Eurozone varies between 1% and more. And this means that the real interest rate that is the difference between the nominal interest rate (0.25% and 0.75%) minus the inflation rate gives interest. Which rate is negative, » notes Mr. Sylla before stating: « In reality, we lose by leaving our money in the accounts of operations of the French Treasury … ».
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