Devaluing a controversial currency

December 16th, 2011  |  Source: Al Jazeera

Fourteen African countries use a currency that hurts their economies and benefits their former colonial master, France.

Three weeks ago, a rumour emerged that the CFA franc - two closely-related currencies used by 14 countries in western and central Africa - would be devalued by 35 per cent on January 1, 2012.

As a result, anxiety is taking hold of the 140 million citizens of francophone Africa. The devaluation could create a liquidity crisis and cause inflation rates to soar. Although the two governors of the central banks of Western and Central Africa have dismissed the rumour, the fact that French authorities and African heads of state failed to comment fuels peoples' fears and could result in a massive financial outflow.

The eurozone crisis and France's struggle to maintain its credit rating deepened fears that devaluing the CFA franc could be indirectly used as an instrument to safeguard the euro.

According to Senegalese economist Sanou Mbaye and a former African Development Bank professional, "the CFA franc does not profit African economies (...). To devalue the CFA Franc would allow France to resist the eurozone crisis". Western and central African countries are resource-rich: The Gulf of Guinea countries are significant oil producers, and Niger is a major source of uranium. According to the National Intelligence Council of the United States, the Gulf of Guinea could provide 25 per cent of US oil needs by 2015.

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