Foreign
reserves must always equal 20% of short term deposits in commercial
banks. All this made the CFA an attractive option in the colonies even
after they attained independence.
The CFA franc zone is remarkably diverse ethnically, lingually,
culturally, politically, and economically. The currency survived
devaluations (as large as 100% vis a vis the French Franc), changes of
regimes (from colonial to independent), the existence of two groups of
members, each with its own central bank (the West African Economic and
Monetary Union and the Central African Economic and Monetary
Community), controls of trade and capital flows - not to mention a host
of natural and man made catastrophes.
The euro has indirectly affected the CFA as well. "The Economist"
reported recently a shortage of small denomination CFA franc notes.
"Recently the printer (of CFA francs) has been too busy producing euros
for the market back home" - complained the West African central bank in
Dakar. But this is the minor problem. The CFA franc is at risk due to
internal imbalances among the economies of the zone. Their growth rates
differ markedly. There are mounting pressures by some members to
devalue the common currency. Others sternly resist it.
"The Economist" reports that the Economic Community of West African
States (ECOWAS) - eight CFA countries plus Nigeria, Ghana, Guinea, the
Gambia, Cape Verde, Sierra Leone, and Liberia - is considering its own
monetary union.
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