African franc-zone reserves effectively grant France subsidized loans below market rates.

Evidence

For example, the interest rate applied between the 1960s and 1980s was that of the Bank of France, ‘that is, in principle, the lowest interest rate’, as Joseph Tchundjang Pouemi said in 1980. Meanwhile, the Bank of France invested in financial markets at much higher interest rates, ‘between 4 and 5 per cent’. The inflation rate in France at the time was around 8 per cent, ‘thus much higher than the interest rate paid on the “operations account”; this means that, as unbelievable as it may seem, the African states have paid the French Treasury to store their “foreign reserves”, i.e. francs’, the Cameroonian economist noted. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 264 (#corroborates, via linked claim)

France’s positions as a privileged creditor in the franc zone is due to at least three reasons. First, the stability of the exchange rate offered by the fixed parity tends to encourage borrowing in the anchor currency: the exchange rate risk against the euro is lower than that of other currencies. Second, as we shall see later, the CFA system pushes domestic credit down, forcing states to resort to foreign debt to finance their development. Finally, the political dimension of the CFA franc, which places the states of the franc zone under the tutelage of the French government, often forces them to turn to France in case of need. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 252 (#corroborates, via linked claim)

In this way, it manages to preserve its foreign reserves, as explained in Chapter 2. Even if its trade balance is deficient vis-à-vis the African countries of the franc zone, it can regulate this deficit in its own currency. Moreover, when the African countries of the franc zone register a trade surplus vis-à-vis the rest of the world, France has access to foreign currency at more economically advantageous conditions than it would otherwise face if it borrowed that same currency. In other words, when the operations accounts of the African countries are in credit, France obtains loans at preferential conditions compared to those prevailing on the financial markets. Thus, through the system of the operations account, the African countries grant France greater financial resources than it would have if it had to rely solely on its own means. Describing this mechanism, the economist Joseph Tchundjang Pouemi spoke of ‘drainage by accounting’. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 251 (#corroborates, via linked claim)

Categorization

• XREF: connects to: Portugal replicated France’s currency cooperation model with Cabo Verde.; The CFA franc’s real purpose was draining colonial wealth to France.; Franc-zone bank credit allocation suppressed African firms competing with French companies — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 128 (+17 more)

Related

• African operations-account credits function as preferential loans to France (similarity 0.91)
• African central banks have periodically earned negative real returns on their French-held reserves (similarity 0.91)
• France’s guarantee is backed by pooled African reserves and French central bank seats (similarity 0.90)
• African countries lost 250 billion CFA francs by depositing reserves in operations accounts (similarity 0.90)
• African states have effectively paid the French Treasury to hold their reserves. (similarity 0.89)
• The CFA system requires African central banks to deposit half their reserves with France. (similarity 0.87)
• France granted African states nominal monetary rights while denying them in practice (similarity 0.87)
• The CFA franc’s real purpose was draining colonial wealth to France. (similarity 0.86)
• Franc-zone bank credit allocation suppressed African firms competing with French companies (similarity 0.86)
• Fixed parity and credit compression make France the zone’s privileged creditor (similarity 0.86)
• The CFA guarantee arrangement secretly benefits France at Africa’s expense (similarity 0.86)
• Unlimited CFA convertibility is guaranteed by the French Treasury lending as needed (similarity 0.86)
• CFA francs are non-convertible among the three African franc-zone sub-units (similarity 0.86)
• Portugal replicated France’s currency cooperation model with Cabo Verde. (similarity 0.85)
• The French Treasury holds accounts in each franc zone central bank (similarity 0.85)

Broader Connections

• African states have effectively paid the French Treasury to hold their reserves. #corroborates (0.90) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 264
• Fixed parity and credit compression make France the zone’s privileged creditor #corroborates (0.85) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 252
• African operations-account credits function as preferential loans to France #corroborates (0.85) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 251
• Franc-zone bank credit allocation suppressed African firms competing with French companies #expands (0.80) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 128
• African central banks have periodically earned negative real returns on their French-held reserves #expands (0.80)
• The CFA guarantee arrangement secretly benefits France at Africa’s expense #corroborates (0.80) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 146
• The CFA system requires African central banks to deposit half their reserves with France. #expands (0.80)
• The 1962 WAMU accords preserved France’s monetary grip on its former colonies #expands (0.75) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 154
• France avoided needing dollars to buy from CFA-zone countries. #expands (0.70)
• CFA franc’s real aims were draining colonial wealth into France, not African progress. #expands (0.70) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 44
• The Bank of France holds nearly 90 percent of BCEAO’s gold reserves #expands (0.70) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 245
• A 2014 amendment capped France’s exchange-rate guarantee at 100 million euros annually #qualifies (0.70)
• Bank of France holds nearly 90 per cent of WAEMU gold reserves #expands (0.70)
• Producing CFA francs in France costs franc zone states over half a billion euros #expands (0.60) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 244
• The convertibility guarantee costs France under 1.3 percent of GDP #qualifies (0.55)