When monetary coloniality meets 21st century finance:  Development in the franc zone

When monetary coloniality meets 21st century finance: Development in the franc zone

Vincent Guermond and Ndongo Samba Sylla

In monetary and financial matters, colonial relationships continue to be alive in some parts of the world despite the achievement of formal independence by former colonies. “One of the most powerful myths of the twentieth century was the notion that the elimination of colonial administrations amounted to decolonisation of the world. This led to the myth of a ‘postcolonial’ world”. This statement from Ramón Grosfoguel that urges us to differentiate de/colonisation from de/coloniality stems from what the Peruvian sociologist Anibal Quijano calls the ‘coloniality of power’. Global hierarchies of power established during more than four centuries of Western colonial expansion such as the international division of labour between the core and the periphery and the racial/ethnic hierarchy between the West and the non-West are still very much alive in today’s world despite the disappearance of colonial administrations. Decolonisation therefore constitutes an “unfinished project” [1].

The notion of coloniality of power could not better illustrate the experiences of African countries where the CFA franc currencies still circulate. In fact, roughly sixty years after independence, the colonial foundations of this monetary arrangement continue to shape political and economic relations between France and many of its former African colonies as well the ‘post-colonial’ development policies supposed to improve the everyday lives of the 162+ millions of people living in the franc zone.

CFA franc and coloniality

Most African countries adopted national currencies after they gained independence such that colonial currency areas gradually disintegrated. These were the case, for instance, with the sterling area, the escudo zone, the peseta zone and the Belgian monetary zone. The franc zone however was the exception to the rule. Created at the end of the Second World War, it regrouped the territories of the French colonial empire located in many places of the globe which maintained privileged commercial links with the metropolis and whose currencies were attached to the French currency – the franc. Today, “African countries of the franc zone” comprise of fifteen countries:

  • the eight countries of the West African Economic and Monetary Union (WAEMU) whose currency, the franc de la communautaire financière africaine, is issued by the BCEAO (Banque centrale des Etats de l’Afrique de l’Ouest);
  • the six countries of the Central African Economic and Monetary Community (CEMAC) whose currency, franc de la coopération financière en Afrique centrale, is issued by the BEAC (Banque des Etats de l’Afrique centrale);
  • and Comoros whose currency, the franc comorien, is issued by the BCC (Banque centrale des Comores).

Linked to the Euro by fixed parity, the convertibility of these three currencies is “guaranteed” by the French Treasury. What does that mean? The French Treasury undertakes to lend foreign currencies – Euros, or French francs previously – to the three central banks whenever their external assets are exhausted. In other words, the three central banks can in principle never run out of currency to settle their claims abroad. There are however three provisos to this “guarantee”, which has proven to be illusory until now. First, the central banks have a current account opened in French Treasury books in which they currently deposit 50% of their net foreign assets, as compared to100% in the 1960s. The French Treasury pays interest if this account is in credit and is paid interest if in debit. In recent years, the real interest rates served by the French Treasury were negative. In effect, this means that African countries “pay” the French Treasury to keep their external assets. Second, France is represented in the monetary policy committee and holds veto power on the board of each central bank. Third, the main objective of monetary policy is to maintain a fixed parity with the Euro. In practical terms, this has involved a drastic restriction of bank credit to states, businesses and households. For the franc zone monetary authorities, more bank credits in the context of lowly diversified economies mean more imports, more imports imply depleting foreign reserves, that is less financial capacity to defend the fixed parity. Like the CFA franc currencies with which they are associated, all these institutional arrangements date from the colonial period.

This context of bank credit rationing has been fertile ground for the banking sector, resulting in some of the highest rates of return in the world [2]. For domestic businesses, things are less rosy as a strong CFA franc coupled with difficult access to bank credit make it extremely difficult for local enterprises to cope with foreign competition. Those among them enjoying some economic success rarely escape the extractive tendencies of an oligopolistic banking sector, as they face high real interest rates. For the states, internal constraints regarding development financing are such that external indebtedness has become more and more necessary. This strategy is encouraged by international financial markets, in search of lucrative opportunities since the launching of zero interest rate policies in the Global North. Thus, countries such as Senegal and Côte d’Ivoire recently have issued Eurobonds on terms that do not seem sustainable given the fragility of their economic growth, which is often dependent on relatively high prices for their primary product exports. With regards to households belonging to the upper and middle classes, bank credit remains relatively accessible, often with prohibitive interest rates, even in the case of consumer loans. For all the rest, that is to say the vast majority, the options, apart from crime and “legal” and “illegal” emigration, oscillate between survival activities and mutual aid practices. However, formal finance in the form of microfinance has started and continues to make noticeable breakthroughs in the realms of social solidarities. As a result, everyday socio-economic practices of exchange, including practices of money remitting and receiving, are increasingly subjected to financial logics, e.g. the management and prioritising of formal financial debts and assets over traditional forms of solidarity.

The coloniality of Development: financial inclusion and remittances

Arguably, the colonial legacy which has shaped the CFA franc is also shaping what Development in the region can and should look like. The depth of the financial sectors in the franc zone is more limited than in the rest of Sub-Saharan Africa countries; the level of use of formal banking services is amongst the lowest in the world: 10% on average compared to 24% in Sub-Saharan Africa. People from the poorest households, notably in rural settings, are often totally excluded from the provision of banking services. This financial marginalisation stems in part from the locational strategy of banking groups in the franc zone which still adheres to the pattern of the “économie de traite” (a euphemism for an extractive colonial economy) and consists of settling in towns and near African ports rather than in the inland.  It is in this particular context that the emergence of microfinance – which, compared to traditional banking, does not require substantial expenses in fixed capital and strong collaterals from clients – took place. Over the past 30 years, financial development reforms and regulatory changes have facilitated the consolidation and professionalisation of the sector in the region at the expense of traditional banking services.

The continuous focus on microfinance is, however, at odds with the now well-established fact that what started as microcredit in the 1980s, and became microfinance in the mid-2000s, has not fulfilled its promises of poverty alleviation, to say the least. The results of a number of randomised trials suggest that the impact of microfinance on household well-being is inconclusive (more here, here and here). Re-labelled as “financial inclusion” at the time of the global financial crisis, the agenda has shifted its emphasis from income generation and entrepreneurship to financial intermediation. In other words, the new mission of financial inclusion actors is not to raise poor people’s income anymore but rather to provide the financial tools that will supposedly help them to manage their money. In this context, the business of facilitating the deployment of digital-based platforms and financial services, among other things, became the priority of the “fintech–philanthropy–development” complex, a new assemblage of actors including Mobile Network Operators, Philanthro-capitalists, Fintechs and International Development/Financial Institutions. Deemed more cost-efficient, more convenient, quicker and safer than the traditional “brick and mortar” banking/microfinance model, electronic payments platforms have in fact increasingly been portrayed as the new key drivers of the financial liberation of poor people.

An example of such platforms is Mobile Money. While systems like MPesa in Kenya and MTN Mobile Money in Ghana are already offering mobile-based financial products to their customers, Mobile Money take-up in the franc zone is slowly catching up. Through algorithms that assign credit scores based on digitally-extracted telecommunication and payments data, Mobile Money customers in the franc zone will soon be able to access small value loans through their mobile phones – also known as “nano-loans” – starting as low as $5 or $10. Crucially, the extension of digital credit or insurance products is reliant on electronic payments to be leveraged, especially domestic and international mobile-based remittances. This is reflected by the increasing role that remittances play in development policies and initiatives that promote the development of financial markets, and financial inclusion in particular (see here, here and here).

This global remittance agenda, of which remittance-linked, digital-based financial inclusion is part of, rests on the assumption that the fruits of migrant labour constitute cost-free financial contributions to be harnessed for the sustenance of national economies. In effect, remittances become fully detached and even ‘purified’ from the realities of indebtedness, sacrifice, separation, racism, hyper-precariousness, imprisonment and even loss of life that often underpin South-to-North migration. This helps us making sense of the contradictory forces that denigrate migrants while lauding migrants’ remittances. By considering that migratory experiences happen within transnational level playing fields, root causes of migration and the conditions in which migrants are incorporated into the metropolitan centres are obscured.

Decades of neoliberal economic policies have led to the collapse of the agriculture, fishing and industry sectors across the franc zone. Following the 1994 devaluation of the CFA franc by 50%, a measure of “monetary adjustment” imposed by France and the IMF in order supposedly to improve budget and trade balances deteriorated by a decade long debt crisis,  remittances from Europe gained significant importance in Senegal and in neighboring countries as banks started to adapt to collect migrants’ transfers. Nowadays, remittances received on a regular basis on a Mobile Money account can ease access to loans and insurance as part of the amount can be deducted automatically for loan repayments or to insure the funds. It is however quite unclear how highly expensive consumption loans that have to be reimbursed in a very short period of time will do any good to an already economically vulnerable population, especially if bank and nonbank financial institutions start capturing a considerable part of the money that is usually used for consumption, education and healthcare.

Only through a critical examination of the coloniality of the CFA franc and its consequences on people’s everyday lives can we start unpacking the genealogies, problematic framings and questionable outcomes of particular development interventions such as the financial inclusion-global remittance agenda. Development strategies that aim to construct, maintain and deepen financial markets, particularly on the back of remittances, cannot be disentangled from the symbolic and material realities of the CFA franc that epitomises a crucial element of the coloniality of power in Francophone Africa.

References :

  1. Grosfoguel, R.,,Maldonado-Torres, N., Saldívar, José D. (2005) “Latin@s and the ‘Euro-American’ Menace: The Decolonization of the US Empire in the 21st Century”, in Ramón Grosfoguel; Nelson Maldonado-Torres; José David Saldívar (eds.), Latin@s in the World-System. Boulder, Co: Paradigm Press, 3-27.
  2. Diop, S. « L’évolution du système bancaire en Zone franc », Techniques financières et développement, vol. 4, n° 121, 2015, p. 59-69.

Vincent Guermond is a third year PhD researcher in the department of Geography at Queen Mary University of London. His research interests are in the areas of the geographies of marketisation and financialisation in the Global South, the political economy of the migration-development nexus, social reproduction theory, coloniality and transnationalism. He tweets at @VincentGuermond. Ndongo Samba Sylla is a Senegalese development economist. He works as a program and research manager at the West Africa office of the Rosa Luxemburg Foundation (Dakar). He tweets at @nssylla

IMAGE CREDIT: Vincent Guermond, 2016, Orange mobile money kiosk in Thies, Senegal