In 2016, Senegal became the second country in the world to launch a national digital currency, the eCFA, but there are many stories attached to the precious currency and its fiat predecessor, CFA.
History of CFA
The CFA franc was created in December 1945, when the French government ratified the Bretton Woods Agreement. It became the currency of les colonies françaises de l’Afrique or the CFA (“French Colonies of Africa”).
The CFA was later split into the Communauté Financière d’Afrique (“Financial Community of Africa”) which included the West African countries: Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo, and the Communauté Financière de l’Afrique Centrale (“Financial Community of Central Africa”) including Cameroon, the Central African Republic, Chad, the Republic of the Congo, Equatorial Guinea, and Gabon.
The French Treasury guaranteed the currency under a fixed exchange rate on the account that the two central banks – the Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC), deposit 50% of their foreign exchange reserves in a special French Treasury ‘operating account’.
The CFA Franc is the name of two effectively interchangeable currencies – the West African CFA Franc and the Central African CFA Franc – which are used by the fourteen African nations.
CFA countries, in the last 50 year, have enjoyed a more stable economy and higher growth figures, compared to the rest of Sub-Saharan Africa; but the price they pay for it is essentially having no control over local interest rates or the money supply— the monetary policy couldn’t be used to influence the economy. There is no doubt that the French created the CFA as a neo-colonial measure to control the resources, economic structures and political systems of their former colonies.
There have been several controversial remarks around the French stronghold on CFA countries, an example is a provocative statement made by Luigi Di Maio, Italy’s former deputy prime minister and current minister of foreign affairs, whilst commenting on the role of the CFA franc on Africa’s development, saying “France is one of those countries that by printing money for 14 African states, prevents their economic development and contributes to the fact that the refugees leave and then die in the sea or arrive on our coasts.”
Eight francophone countries of the CFA: Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo joined the six English-speaking ECOWAS countries: Nigeria, Ghana, Gambia, Liberia, Sierra Leone and Guinea to form a monetary union. They made plans for an ECOWAS-wide currency called the Eco in 1999. Rather ambitiously, they aimed to launch it in 2000 but till date has not been executed yet.
The agreement says that all countries must meet certain requirements before the Eco is formed. Conditions include having less than 10% inflation and a budget deficit that is less than 3% of GDP, only Togo has met the criteria.
The launch of eCFA
The media went on a frenzy when reports came out that Senegal, a West African nation, intended to launch its own national digital currency, the eCFA. The country was set to follow suit after Tunisia, which launched its Digital currency, the eDinar, on the blockchain.
Senegal’s digital currency ‘eCFA’ launched in December 2016 to co-exist as a legal tender alongside the recognized fiat currency, CFA Franc, whilst holding an equivalent value.
The launch of Senegal’s eCFA was a result of a collaboration by Banque Régionale de Marchés (BRM), a local Senegalese bank and eCurrency Mint Limited, a Dublin-based company that specializes in creating digital currencies for central banks to operate alongside notes and coins. BRM issued the eCFA, in compliance with e-money regulations of Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), the Central Bank of West African Economic and Monetary Union (WAEMU).
Basically, the issuance of the eCFA is totally controlled by the Central Bank, as they own the production through a digital currency production engine meant to be kept offline until when needed, as explained by Jonathan Dharmapalan, founder and CEO eCurrency Mint, at the Alliance for Financial Inclusion Global Policy Forum in the Mozambican capital, Maputo, in 2015.
‘Just like paper money has a watermark, serial number and governor’s signature, these security features can be translated to form a digital currency operating under the principles of an existing paper currency ’ said Jonathan.
However, it is quite unclear what kind of distributed ledger technology eCFA uses, as BRM revealed very little about the technical details of the digital currency. Skeptics criticized eCFA’s dependence on a centralized banking system, which defeats the purpose of decentralization of digital currencies.
The rise in the interest of Central Banks issuing e-currencies whilst using the technological features of cryptocurrencies is a calculated move to maintain their role as a sole issuer of national currencies, so as to not handover control to ungovernable blockchain currencies like Bitcoin before they gain popularity.
The feasibility of eCFA
Considering the low financial inclusion rate across Sub-Saharan African where less than 40% of the population have access to banking services, loans and savings, mobile money solutions have seen tremendous growth and acceptance over the last ten years, with the most successful one being the Mpesa in Kenya, which currently operates in over 10 countries.
Banks often demand a series of document requirements to open a bank account, which majority of the African population do not have. Mobile money instantly struck a chord with these set of people.
These mobile money solutions allow users mostly of marginalized demographics, to own a ‘virtual account’ pegged to their phone number, they can easily load their accounts at local mobile money agents with cash and enjoy seamless and cheap transactions without the need of an internet connection or a bank account but rather just dialling codes on their phones.
eCFA was termed as another opportunity for financial technology to help emerging markets leapfrog traditional banking systems and bring financial inclusion to more people.
In a joint statement, the BRM and eCurrency Mint stated that the “eCFA is a high-security digital instrument that can be held in all mobile money and e-money wallets. It will secure universal liquidity, enable interoperability, and provide transparency to the entire digital ecosystem in WAEMU (West African Economy and Money Union).
There are tons of Fintech solutions trying to bridge the financial inclusion gap with Mobile money solutions such as Mpesa, Airtel money, Orange etc. However, they all exist on different platforms, thereby, leaving no space of interoperability between them. An Mpesa user cannot send money to an Airtel money user.
The eCFA was designed to work with existing mobile money platforms, ticking it for a higher chance of success. The digital currency was regarded as an experiment using blockchain technology to show that Africa is a fertile ground for testing and deploying new Fintech solutions.
The proposed success of eCFA was planned to see the digital currency being used in most of Francophone West Africa – Cote d’Ivoire, Benin, Burkina Faso, Mali, Niger, Togo and Guinea Bissau.
Was the experiment a success?
In a report by Bloomberg, The Central Bank of West African States distanced itself from plans to introduce a digital currency in Senegal, saying it was not involved in the project and would not consider doing so.
The Central Bank, in a statement on its website, warned the issuing bank, BRM, against the use of the term: “eCFA”, in order “to prevent any kind of confusion with the legal currency” in the region.
Although the exact reason for the decision was not given, the institution vehemently stated that it was not considering creating a digital currency in any of its member states.
A deeper insight into the project reveals that it might have been a short-lived one, considering that digital currencies do not require its users to provide any personal information. Bitcoin, for example, only requires an internet connection and a smartphone for anyone to carry out transactions.
The eCFA, a Central Bank Digital Currency, would have come with the same regulatory headaches of traditional finance— the need for KYC procedures and documents, one of the limiting factors currently hindering the population from owning a bank account.
Like most West African countries, where financial inclusion and access to banking services is still lagging, the eCFA could have a substantial impact on Senegal and beyond by providing them with a secure, reliable, and cost-efficient means of sending, receiving, and storing funds.
There has been no latest report on the development of the eCFA ever since the statement by The Central Bank of West African States.
Have all hopes been shattered?
Probably not. The eCFA might have not gained the desired traction but another project is keeping the hopes of a widely used digital currency in Senegal, alive.
Popular Senegalese American singer, Akon, is set to launch Akoin, a cryptocurrency that will be the local currency in Akon City, a $6 billion 2,000-acre wide city (currently under construction) in Senegal.
The singer had some problems exchanging CFA franc to the Euro at a currency exchange counter in France, despite the history of France and the CFA Franc.
“We have to have our own currency”, he said.
Akoin is built to be a utility token (that is, one that has a specific use), not an investment tool; Karas, Co-founder of Akoin said.
However, irrespective of these numerous hurdles, Senegal still remains a major hotbed for the adoption of digital currency in Africa.