CEMAC’s Strategy on Franc CFA Devaluation: A Deep Dive into Economic Stability In response to the analysis by David Cowan, Chief Economist for Africa at Citi, who believes that the devaluation of the CFA franc (XAF) in the Central African Economic and Monetary Community (CEMAC) is at the heart of the current economic narrative in the region, this analysis aims to offer a perspective from a seasoned banker with over two decades of practice.
The banker, having participated in various roundtable discussions on monetary and banking issues in the CEMAC zone, offers a nuanced view on the challenges and potential solutions.
The mention of ‘devaluation’is fraught with trauma for citizens of the CFA zone, recalls the banker, who witnessed the CFA franc’s devaluation on January 11, 1994, as a student in first-year GM (Management-Mathematics) at the National Technical High School Omar Bongo. This event sparked a keen interest in economic and financial matters and shaped his career path. To set the stage, it is crucial to define some key concepts: money serves as a unit of account, a medium of exchange, and a store of value.
A devaluation is the official decision by monetary authorities to reduce the value of a currency relative to a reference currency. Reserves of foreign exchange are assets in foreign currencies and gold held by a central bank, crucial for financing imports and external debt payments in times of crisis.
In the Central African region, the recommended minimum reserve is three months of imports.
The issue of foreign exchange reserves held by resident companies has been contentious. Regulation No. 02/CEMAC/UMAC/CM of December 21, 2018, regulating changes in the CEMAC, prohibits resident legal entities from opening foreign currency accounts outside the CEMAC, except for credit institutions.
The Central Bank may, however, authorize a resident legal entity to open a foreign currency account under specific conditions.
The Central Bank’s decision to set the repatriation rate of foreign exchange at 35% initially and later increase it to 50% from January 1, 2027, and 70% from January 1, 2028, is seen as a positive step to replenish the region’s foreign exchange reserves. This decision is essential as all economic actors must contribute to the stability of our monetary zone.
In addition to the repatriation of foreign exchange assets, the BEAC has authorized extractive sector companies to open foreign currency accounts in the books of commercial banks in the CEMAC to ensure the same level of service and speed while automating payment systems.
In the long term, it is important for the BEAC to lead companies towards no longer having foreign currency accounts outside the CEMAC.
The banker argues that the economist’s focus on the specter of devaluation is misplaced. Instead, he advocates for lessons learned from the 1994 devaluation, considering the new dynamics and constraints of our economies.
The 1994 devaluation, which aimed to boost economies by restoring competitiveness, instead led to an economic shock.
*Additional reporting by ImNews | Sources consulted: 5*
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This original article was produced by the ImNews editorial team
Source: Agpgabon
Source: Redaction
