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 euro with an exchange rate 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 currency has prevented economic development by maintaining an artificially high exchange 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 change 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 monetary authority. 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.