Farewell to the CFA Franc: Macron and Ouattara End a Colonial Legacy

French President Emmanuel Macron and Alassane Ouattara, President of Côte d’Ivoire, have officially sounded the death knell for one of the last remnants of colonial-era finance: the CFA franc.

Created in 1945, the CFA franc has long been a unique survivor among colonial currency systems. It is used by 14 African nations divided into two regional monetary unions across West and Central Africa. But on December 21, the two presidents announced that the CFA franc would disappear in the eight countries of West Africa, home to some 130 million people, and be replaced by a new currency — the eco — beginning in the new year.

A Colonial-Era System That Endured

While other colonial currencies vanished decades ago, the CFA franc not only endured but prospered. Within the zone, the currency is fully convertible, and there are no capital controls between member states. France has long played a central role, guaranteeing the franc’s convertibility to the euro at a fixed rate through an “operations account” at the French Treasury. In return, Paris maintained influence over the zone’s monetary policies, providing both fiscal discipline and financial backing by managing countries’ access to credit.

Economically, the CFA system has performed relatively well. Member states have generally maintained lower fiscal deficits, reduced debt burdens, and lower inflation and unemployment compared with many other African economies. These results reflect the discipline imposed by the fixed exchange rate and France’s oversight.

Political Pressure and the Push for Reform

So why, after decades of stability, did the CFA franc become politically untenable? The answer lies in renewed colonial sensitivities. Earlier in 2019, Italian Foreign Minister Luigi Di Maio accused France of exploiting its former colonies through the CFA franc — a claim that found support among African activists and some political leaders.

In response to these mounting criticisms, Macron sought to “decolonize” France’s image in Africa. To that end, he and Ouattara agreed to replace the CFA franc with the eco starting January 1.

The reforms include closing the CFA franc’s account at the French Treasury, eliminating the requirement that the Central Bank of West African States (BCEAO) deposit 50% of its reserves at the Banque de France, and ending French representation on the central bank’s board. France, however, will continue to guarantee the eco’s convertibility to the euro at a fixed exchange rate.

Despite these announcements, many observers view the changes as largely symbolic.

A Strategic Move in Regional Politics

The introduction of the eco serves a strategic purpose. For nearly two decades, the Economic Community of West African States (ECOWAS) has planned a shared regional currency — also called the eco — intended to unify both Anglophone and Francophone countries under Nigeria’s economic leadership.

By advancing their own “Francophone eco,” Macron and Ouattara have effectively complicated ECOWAS’s broader currency ambitions, which centered around Nigeria, the region’s largest economy and most populous nation.

Toward a Currency Board System?

Looking ahead, the best path for the new eco zone may be to evolve into a currency board system. Under such a system, every unit of domestic currency in circulation is backed by 100% foreign reserves — in this case, euros — and the exchange rate remains permanently fixed.

A currency board has no discretionary powers: it cannot create money or conduct independent monetary policy. Its sole function is to exchange the local currency (ecos) for euros at the set rate. The money supply is therefore determined entirely by demand, making the eco effectively a mirror of the euro.

Historically, currency boards have operated in more than 70 countries, including several in Africa, with an unbroken record of maintaining convertibility.

Why Currency Boards Fell Out of Favor

Despite their success, most currency boards were eventually replaced by central banks. Three factors explain this shift:

1. Economists began promoting central banks for their supposed flexibility and ability to fine-tune economies.

2. Newly independent nations sought to assert sovereignty by breaking ties with former colonial powers.

3. International institutions like the IMF and World Bank encouraged the creation of central banks, often for political and institutional reasons.

Among major institutions, only the Bank of England continued to defend the currency board model.

The Promise of a Stronger Eco

If West African nations adopt a true currency board structure, they could create Africa’s most stable currency. Such a system would ensure fiscal discipline, impose hard budget constraints, generate profits from reserve management, and — crucially — grant the member states full monetary independence from Paris.