The CFA franc includes 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 The name of the European single currency adopted by the European Council at the meeting held in Madrid on 15-16 December 1995. See ECU. with an The rate at which one currency will be exchanged for another. of 655 CFA franc = € 1. The peg is guaranteed by France and in counterpart 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 CFA was increasingly criticised by public opinions in Africa as well as economists. It was viewed by many as a relic of colonialism. Originally, the CFA franc stood for Franc of the French Colonies of Africa though that was recently changed to Franc of the Financial Community of Africa. And the foreign reserves of the participating countries stored in the vaults of the Banque de France was a strong symbol of post-colonialism. Economists argued that the peg to the euro removed monetary and fiscal independence and had failed to boost regional trade. Opponents argued that the inability to devalue the The money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. has prevented economic development by maintaining an artificially high The Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. rate. Proponents of the CFA franc believed that it had ensured economic stability and controlled inflation.
The West African Monetary Union has agreed with France to reform the monetary agreements. Beyond the symbolic This is the action by which certain banknotes and/or coins are exchanged for the same amount in banknotes/coins of a different face value, or unit value. See Exchange. of name, two key decisions were taken: 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 See Central Bank. The peg with the euro will continue to be guaranteed by France. 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.
Other countries in the region could be tempted to join the Eco. West African nations such as Nigeria and Ghana have, for decades, been in talks with the West African Monetary Union about creating their own currency to promote regional trade and investment.