Devaluation of Franc Xcfa Versus the U.S. dollar

Devaluation of Franc Xcfa Versus the U.S....

The Franc XCFA (xaf), the monetary system of six Central African states under the BEAC central bank, has suffered a massive 25% appreciation by the U.S. Dollar since March 2014.

In March 2014 the exchange rate was USD1 to 470 Fcfa. Today, it stands at 590 Fcfa, with the situation set to accelerate in the coming months given the European Central Bank’s massive money printing promise to start in March 2015.

Unlike Europe, many emerging economies in the BEAC zone are doing relatively well, with 4-5% annual growth rates. However, as a relic of its colonial pass, the BEAC currency is fixed to the Euro (previously the French francs). As a consequence Xcfa moves and falls in line with similar moves by the euro.

The positive side of the massive currency devaluation is most likely to be an increase investment into the local BEAC economy by the U.S. diaspora. Infact, properties and local produce will be very attractive to those who make income in dollars.

However, the U.S. diaspora of BEAC states is very small and invest less than its European diaspora. While the U.S. Federal government has taken steps in recent years to increase economic ties with Africa, only British colonial african states have been smart enough to take advantage of these measures.

My personal take on the Xcfa devaluation due solely to the worsening economic state of Europe, will be largely negative for BEAC zone economy

  • imported goods will get a lot more expensive for the locals
  • euro remittances will drop
  • dollar based remittances will be unchanged (mostly family expenses, little investment)

For the smart ones amongst us, this is the perfect storm for engagement with the U.S. Market. BEAC goods will be very attractive to this market and the exchange rate is set to only get best for African exporters. In addition, the Bush era African economic treaties will be very helpful for African exporters to create partnerships within the U.S.

What do you think of the massive and ongoing fall of our local Xcfa currency? How can we take advantage of the situation and make good of it? Share your thoughts below.

 

 

usdxaf

One Response to "Devaluation of Franc Xcfa Versus the U.S...."

  1. Che Sunday   September 22, 2015 at 8:44 am

    This is likely to be very short-lived. The Eurozone is not going to sit still in its economic turmoil for a lengthy time. Actually, the current exchange rate has not gone to where it once stood, (750 cfa to the dollar.) If it ever gets to 600 cfa to the dollar, I will say it has reached a stabilization plateau. Due to the fixed-peg arrangement, francophone countries have suffered greatly. Even in times of economic down time, it is not uncommon to find the cfa franc appreciating against the dollar. Such unusual economic outcomes only occur in francophone Africa, most precisely, in Sub Saharan Africa. Its still a miracle why these countries still hang on to the Franc cfa.

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