The Ivoirien franc

A few Ivoirien news sources are reporting rumours that the Laurent Gbagbo government is considering withdrawing Cote d'Ivoire from the CFA Franc and inaugurating a new currency that could be called the "Ivoirien", the "Ivoirien franc" or the "MIR". [The news site in the hyper-link is in French].

Gbagbo's action is prompted by moves by the Banque Centrale des États de l'Afrique de l'Ouest to deny his government access to Cote d'Ivoire's revenues/reserves/treasury. The BCEAO is an 8-nation, shared Central Bank that administers the western CFA franc zone (the Banque des Etats de l'Afrique Centrale or BEAC administers the Central African CFA zone).

I personally think Cote d'Ivoire would be better off rid of Gbagbo, Ouattara AND Bedie, as well as every other Houphouet-Era politician and the support structures (including younger politicians) that keep these dinosaurs from extinction.

Also, I do not think the Ivoiriens will carry through with the threat to start a new currency. Cote d'Ivoire is the richest member of the BCEAO zone (actually, they are probably the wealthiest member of the two CFA zones combined), and I suspect the threat of withdrawal is being used as a negotiating tactic to force the BCEAO to contemplate life without Cote d'Ivoire thus pressuring them into neutrality in the Ivoirien political crisis.

Having said that, a part of me wishes Cote d'Ivoire would break free of the CFA.

I have two problems with that currency. One is political. The other is economic.

On the political side, the CFA is anachonistic and is managed in an anachronistic way. It is as though the French Colonial Empire never ended. Like a colonial currency, the CFA is pegged to the French currency (first the French Franc, and now the Euro), and while everyone pretends the currency is managed by the BCEAO and BEAC, it is in reality managed by the French Treasury (and thus by extension the French government).

All BCEAO and BEAC countries are required to deposit their reserves with the French Treasury. The French Treasury then gets to "lend" their own money back to them, earning interest (i.e. adding to French revenues). Over the years I have read many (angry) commentaries by citizens of BCEAO and BEAC countries complaining about the lack of transparency, some believing the French use these reserves to bolster France's own fiscal position, credit rating, and internal capital investment (i.e. investment in France).

But that is another long argument in itself ... and one that I am not interested in.

Suffice to say, the CFA is managed in a rather "colonial" way, and that bothers me.

On the economic side of things, there is much debate about what constitutes an "Optimal Currency Area". Outside of the rarified world of academic and theoretical Economics, there exists in the "real world" political camps ranging from nationalistic ideologuess who never want to give up their own national currency, and free market ideologues who seem to believe everything, everywhere will be better if all currencies are replaced with a single currency.

Life is never as simple as a textbook or as a political ideology.

Massive fiscal transfers sustain most of the world's large currency areas, even in the United States where there are no barriers per se to the movement of labour or capital.

The newest large currency area, the Euro is currently struggling with the dawning reality that their currency cannot exist without such transfers from richer regions of the currency area (e.g. Germany) to poorer regions (e.g. Greece). The Europeans might want to consider the United States, where states that receive net fiscal transfers from other states tend to be the states that vote against exactly the kind of government tax-and-spend policies that allow their states to receive the unearned largesse. Having been quite happy to be receive years of de facto subsidies from California, Congressional legislators from the recipient states are just as happy to vote against using federal money to bail out California in its time of economic distress because it would mean their states would stop being transfer recipients and become instead the source of fiscal transfers to a putatively recipient California.

The newest large economy, China, is struggling to handle (actually to prevent) the massive internal movements of labour driven by regionally unbalanced growth. While there are legally no barriers to movement in the United States, in practice most citizens of the United States would probably rather have New York indirectly subsidize Mississippi, rather than having the whole population of Mississippi come crowding into New York City (or to have had the population of Alaska before the discovery of crude oil abandon the place for California).

Long story short, I do not think Africa would benefit from having a single continental currency (the so-called "Afro"; yes, that is what they call it, these people who just copy the facade, but not the substance, of everything Europe does).

On the other hand, I do not think Africa's present-day currency areas are optimal or even basically reflective of the continent's underlying economics.

Why does Cote d'Ivoire share the same currency as the Central African Republic and Cameroun (or even Senegal) ... but not with Ghana?

It doesn't make sense.

In fact, I daresay Ghana, Cote d'Ivoire and Burkina Faso should constitute a single currency area. This would mean the rearrangement of currency areas beyond these three. While I am not interested in getting into that long discussion, suffice to say no one would argue with me if I said our northern neighbour Niger Republic should be in the Naira zone, or that Gambia and Senegal should be in the same zone (ironically Gambia is trying to join a shared zone with Nigeria that will not be the Naira zone, while Senegal remains in a currency it incongruously shares with Gabon).

It is no simple thing to change currency and adjusting currency area, however, the fact that Ghana already has a currency (the Ghana Cedi) would make such a transition less jarring for Cote d'Ivoire and Burkina Faso than it would be if the Ivoiriens and/or Burkinabes were trying to create new national currencies from scratch.

Of course none of this will happen.

The Ivoirien Franc won't happen either. Mind you, if it did, I will probably write a blog post to criticize it. Rather than two currencies (Cedi and CFA) or three (Cedi, CFA and Ivoirien Franc), the Ivoiriens should be moving to a single currency area with their neighbours Ghana and Burkina Faso.