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CFA Franc

CFA Franc
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What Is the CFA Franc?

The CFA franc, backed by the French treasury and pegged to the euro, alludes to both the Central African CFA franc (XAF) and the West African CFA franc (XOF), and is accepted in 14 member countries.

CFA represents Communaut\u00e9 financi\u00e8re d'Afrique or African Financial Community. In 2019, the CFA Franc was officially renamed the "Eco."

Grasping the CFA Franc

The CFA franc was made by France in 1945 and pegged to the French franc. CFA franc can allude to either the Central African CFA franc, which is the official currency of six member nations and represented by the shortened form XAF in currency markets, or the West African CFA franc, which is the official currency of eight member nations and is represented by the truncation XOF in currency markets.

At the point when France changed from the franc to the euro, the currencies retained parity, so the currencies currently trade at 100 CFA francs to 0.152449 euro or, put another way, one euro equals 655.96 CFA francs.

Both CFA francs are interchangeable as they hold similar monetary value against different currencies, however they are separate currencies. In theory, nonetheless, the French government or the monetary unions utilizing the currencies could choose to change the value of either. Given that it has the responsibility of backing the CFA franc, the French treasury controls half of the foreign exchange reserves of every one of the 14 CFA franc utilizing countries.

The abbreviation CFA, as it connects with the Franc, has had a couple of implications throughout the long term. Somewhere in the range of 1945 and 1958, CFA represented colonies fran\u00e7aises d'Afrique, alluding to former African states of France. Among 1958 and the independence of the nations involving the CFA in the mid 1960s, it represented communaut\u00e9 fran\u00e7aises d'Afrique (French Community of Africa). At last, following the country's independence; and right up to the present day it represents Communaut\u00e9 financi\u00e8re d'Afrique (African Financial Community) in the West African Economic and Monetary Union and Coop\u00e9ration Financi\u00e8re en Afrique Centrale in the Central African Monetary Union.

XAF and XOF

The two monetary unions in the CFA franc zone currently comprise of 14 sub-Saharan African nations. The West African Economic and Monetary Union, established in 1994, contains Benin, Burkina Faso, C\u00f4te D'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. The Central African Economic and Monetary Union comprises of Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon. As indicated by World Bank data, the Central African Republic has encountered around 2% annual inflation and has a gross domestic production (GDP) of just 0.4%, for the year 2020, which is the latest year of accessible data.

The CFA franc is one of two regional African currencies backed by the French treasury with pegging to the euro. "CFA franc" can allude to either the Central African CFA franc, abbreviated XAF in currency markets, or the West African CFA franc, abbreviated XOF in currency markets. In spite of the fact that they are separate currencies, the two are actually interchangeable as they hold similar monetary value against different currencies. In theory, notwithstanding, the French government or the monetary unions utilizing the currencies could choose to change the value of either.

History of the CFA Franc

The CFA franc was brought into the world in 1945, following the finish of the Second World War. Already, French provinces had their currencies pegged to the French franc. Notwithstanding, changes made by the signing of the Bretton Woods Agreement, approved in 1945, pegged the French franc to the [U.S. dollar](/usd-US dollar), which devalued the French franc. France made the new currency to try not to devalue the money in its states.

The initial exchange rate in 1945 was one CFA franc to 1.70 French francs. In 1948, the rate changed from one CFA franc to two French francs after the devaluation of the French franc. This misleadingly high exchange rate for the CFA franc caused economic stagnation among the countries in the CFA franc zone during the 1980s and mid 1990s. In counsel with France and the International Monetary Fund (IMF), the African monetary unions chose to devalue their currencies by half, which, alongside other fiscal and monetary policy adjustments, generated GDP growth of 5% in the CFA franc zone somewhere in the range of 1995 and 2000.

Highlights

  • The CFA franc, backed by the French treasury and pegged to the euro, alludes to both the Central African CFA franc and the West African CFA franc, and it's accepted in 14 member countries.
  • One euro equals 655.96 CFA francs.
  • Central African CFA franc, represented by the condensing XAF in currency markets, is the official currency of six member nations, and the West African CFA franc, represented by the shortened form XOF in currency markets, is the official currency of eight member nations.