The CFA Franc in the top 3 currencies of sub-Saharan Africa against the dollar, since early 2017

 The francs CFA, the UEMOA and CEMAC currencies, are among the top 3 currencies in Sub-Saharan Africa that have performed best since the beginning of 2017, according to Ecobank Research's currency tracking index.

As of September 4, 2017, the UEMOA CFA franc increased by 14% on the US currency, while that of CEMAC grew by 13%, taking respectively the second and third place in terms of performance since the first January 2017. The only motto that has done better and which occupies the first place is the Mozambican Metical. It increased by 16% over the same period.

In the week ending September 4, Ecobank Research's monetary analysis note, reveals that the CEMAC CFAF has grown by 1.5% and is the only currency in Africa sub-Saharan Africa, whose performance exceeded the 1% mark over this specific period.

More specifically, the CFAF of the two economic regions UEMOA and CEMAC, which have nearly paralleled 612 for $ 1, are now trading around 550. This monetary performance may seem paradoxical, especially in the CEMAC zone, where its economies of small size have been negatively impacted by lower commodity prices, their main sources of foreign exchange earnings.

The explanation for this performance comes from the fact that these two currencies are linked to the Euro, on the basis of a quasi-fixed parity. Thus, independently of its own performance, a strengthening or depreciation of the euro on the US currency directly impacts the value of the FCFA.

However, as the research note notes, the European currency continues to strengthen against the US dollar since the beginning of this year, due to the difficulty for the US administration, to find clear solutions for the reduction of debt, to restore power to investors, and to maintain the reversal of the unemployment curve.

Meanwhile, in Europe, the market seems to be calming down as players integrate the favorable vote for Britain's exit from the European Union and the victory of leaders less inclined to protectionism in France and in the Netherlands in particular. All of which helped reassure investors in this area.

The appreciation of this performance of the FCFA is however not unanimous. Although this strengthening vis-à-vis the dollar has contributed, in particular to Central Africa, to strengthening the external balance, part of the opinions of the countries concerned criticize this attachment of their currency to a foreign currency, whatever its positive or negative implications.

In any case, beyond this disapproval, the FCFA should continue to improve against the dollar until the end of 2017, according to the deduction of the analysts of Ecobank Research, precisely because of an expected strengthening of the euro on the US currency. A scenario which, according to some experts, for the economies of African countries using the CFA, will result in a reduction in the local cost of their imports and a significant and subsequent improvement in their balance of payments.


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