For better or for worse: the euro and the CFA franc.

The effect of the single European currency on African economies is uncertain. Many agree that the euro, which will become the sole legal tender in 11 European countries (euroland) after June 30, 2002, will have an economic effect on the 14 African countries that use the CFA franc as their currency, but the direction of that effect is unknown. Currently, euroland and the CFA countries have close trade links. The euro could cause an economic upswing in euroland, leading to a boost in demands for imports, but the euro regime could have a negative impact on certain European sectors that would lead, in turn, to slower export growth in certain sectors of African economies. The CFA-euro link will promote exchange rate stability that could stimulate greater inflows of direct investment into the CFA zone and give CFA borrowers increased access to euroland financial markets. On the other hand, this may mean that CFA borrowers will abandon CFA financial markets. Also, perpetrating a preexisting risk, if the CFA franc becomes devalued because of the strength of the euro, CFA countries may experience a destabilizing loss of capital to euroland. This and other risks were discussed at a November 1998 symposium on the future of the CFA franc zone.