What Is the CFA Franc?
The CFA franc, subsidized by way of the French treasury and pegged to the euro, refers to every the Central African CFA franc (XAF) and the West African CFA franc (XOF), and is accredited in 14 member global places.
CFA stands for Communauté financière d’Afrique or African Financial Community. In 2019, the CFA Franc was once officially renamed the “Eco.”
Key Takeaways
- The CFA franc, subsidized by way of the French treasury and pegged to the euro, refers to every the Central African CFA franc and the West African CFA franc, and it’s accredited in 14 member global places.
- One euro equals 655.96 CFA francs.
- Central African CFA franc, symbolized by way of the abbreviation XAF in foreign exchange markets, is the original foreign exchange of six member international locations, and the West African CFA franc, symbolized by way of the abbreviation XOF in foreign exchange markets, is the original foreign exchange of 8 member international locations.
Understanding the CFA Franc
The CFA franc was once created by way of France in 1945 and pegged to the French franc. CFA franc can talk over with each the Central African CFA franc, which is the original foreign exchange of six member international locations and symbolized by way of the abbreviation XAF in foreign exchange markets, or the West African CFA franc, which is the original foreign exchange of 8 member international locations and is symbolized by way of the abbreviation XOF in foreign exchange markets.
When France switched from the franc to the euro, the currencies retained parity, so the currencies just lately trade at 100 CFA francs to 0.152449 euro or, put in a different way, one euro equals 655.96 CFA francs.
Each and every CFA francs are interchangeable as they hang the an identical monetary worth against other currencies, although they are separate currencies. In theory, however, the French executive or the monetary unions using the currencies would possibly simply make a decision to switch the value of one or the other. Given that it has the obligation of backing the CFA franc, the French treasury controls 50% of the foreign currency echange echange reserves of all 14 CFA franc using global places.
The acronym CFA, as it relates to the Franc, has had a few meanings over the years. Between 1945 and 1958, CFA stood for colonies françaises d’Afrique, referring to former African colonies of France. Between 1958 and the independence of the international locations using the CFA inside the early Sixties, it stood for communauté françaises d’Afrique (French Community of Africa). Finally, following the rustic’s independence; and to nowadays it stands for Communauté financière d’Afrique (African Financial Community) inside the West African Monetary and Monetary Union and Coopération Financière en Afrique Centrale inside the Central African Monetary Union.
XAF and XOF
The two monetary unions inside the CFA franc zone just lately surround 14 sub-Saharan African international locations. The West African Monetary and Monetary Union, based totally in 1994, accommodates Benin, Burkina Faso, Côte D’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. The Central African Monetary and Monetary Union consists of Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon. In keeping with World Monetary establishment data, the Central African Republic has professional spherical 3.3% annual inflation and has a gross house production (GDP) of merely 0.9%, for the 12 months 2021, which is some of the provide 12 months of available data.
The CFA franc is one among two regional African currencies subsidized by way of the French treasury with pegging to the euro. “CFA franc” can talk over with each the Central African CFA franc, abbreviated XAF in foreign exchange markets, or the West African CFA franc, abbreviated XOF in foreign exchange markets. Even supposing they are separate currencies, the two are effectively interchangeable as they hang the an identical monetary worth against other currencies. In theory, however, the French executive or the monetary unions using the currencies would possibly simply make a decision to switch the value of one or the other.
History of the CFA Franc
The CFA franc was once born in 1945, following the top of the 2nd World Combat. Up to now, French colonies had their currencies pegged to the French franc. On the other hand, changes made by way of the signing of the Bretton Woods Agreement, ratified in 1945, pegged the French franc to the U.S. buck, which devalued the French franc. France created the new foreign exchange to avoid devaluing the money in its colonies.
The initial industry charge in 1945 was once one CFA franc to no less than one.70 French francs. In 1948, the velocity changed from one CFA franc to two French francs after the devaluation of the French franc. This artificially best industry charge for the CFA franc resulted in monetary stagnation some of the global places inside the CFA franc zone inside the Nineteen Eighties and early Nineteen Nineties. In consultation with France and the International Monetary Fund (IMF), the African monetary unions decided to devalue their currencies by way of 50%, which, in conjunction with other fiscal and fiscal protection adjustments, generated GDP expansion inside the CFA franc zone between 1995 and 2000.
