Scarce CFA credit causes savings scarcity, not the reverse.

Evidence

Thus, a monetary system that represses internal credit, such as the CFA system, reflects a lack of confidence in the ability of economic agents to make productive use of bank loans: etymologically, the word ‘credit’ comes from the Latin ‘credere’, which means ‘to trust’ or ‘to believe’. In this context, the paucity of bank loans is not the result of a lack of national savings. Quite the opposite: since loans create deposits, it is the paucity of loans that causes the scarcity of savings! — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 140 (#corroborates, via linked claim)

We now come to the third handicap: the underfinancing of the African economies. As noted above, the priority of the zone’s central bank is to ensure that there are sufficient foreign exchange reserves to defend the parity of the CFA francs against the euro. This means that they must limit the creation of money, that is, the domestic credit granted to governments, businesses and households. If foreign reserves decrease, they must tighten credit by increasing interest rates and lowering the refinancing ceilings. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 308 (#expands, via linked claim)

There is an idea that is still widespread in economics textbooks and among orthodox economists: the notion that banks are financial intermediaries that collect household savings which they then offer to businesses. This implies that it is the savings of households that allow for the financing of businesses. This vision of the role of banks and the financing of investment, however, is at odds with reality. When a bank lends 1 million euros to a company, it simultaneously creates a deposit of 1 million euros for its client. In other words, it creates an additional purchasing power of 1 million euros in the local economy. In order to be able to grant this loan, the bank does not need to have previously collected savings for an equivalent amount. It simply taps some numbers into a computer and credits 1 million euros – which are effectively created ‘out of thin air’ – to the account of its client. Only later does the bank worry about collecting the required reserves. In modern economies, therefore, ‘fresh’ money is created when commercial banks grant loans. This leads to the surprising consequence that credit – the creation of money ex nihilo – is what finances investment, not savings. In fact, it works the other way round: the investment is what creates the savings, as the economic growth induced by the increase in the investment rate tends to increase the national saving rate as well. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 139 (#expands, via linked claim)

Categorization

• XREF: connects to: Banks create money out of thin air when granting loans rather than lending savings; Scarcity of savings stems from scarcity of loans, not vice versa; The CFA franc structurally denied credit to economic actors outside colonial accumulation (+4 more)

Related

• The CFA system’s credit repression causes savings scarcity, not the reverse (similarity 0.96)
• Scarcity of savings stems from scarcity of loans, not vice versa (similarity 0.96)
• Banks create money out of thin air when granting loans rather than lending savings (similarity 0.94)
• The CFA franc structurally denied credit to economic actors outside colonial accumulation (similarity 0.92)
• Banks create money ex nihilo, so credit not savings finances investment (similarity 0.89)
• The CFA central banks subordinate domestic credit to defending the euro parity. (similarity 0.87)
• The CFA franc was a political choice that deprived non-adapting African actors of credit (similarity 0.83)
• The CFA franc was a colonial instrument depriving African actors of credit. (similarity 0.83)
• Franc-zone banks hold idle liquidity instead of lending to the economy. (similarity 0.83)
• The CFA system blocks African countries from financing their own agricultural development (similarity 0.82)
• Financing local food production would save rather than deplete African foreign reserves (similarity 0.81)
• Franc-zone central banks must restrict domestic credit to defend the fixed euro parity (similarity 0.81)
• CFA convertibility guarantee is cheap only because African economies stay small. (similarity 0.80)
• Eurozone membership merged CFA extraction with neoliberal austerity, worsening African prospects. (similarity 0.79)
• The CFA franc’s parity was set without regard for local economic realities (similarity 0.79)

Broader Connections

• The CFA system’s credit repression causes savings scarcity, not the reverse #corroborates (0.95) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 140
• The CFA central banks subordinate domestic credit to defending the euro parity. #expands (0.70) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 308
• Banks create money ex nihilo, so credit not savings finances investment #expands (0.60) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 139