By Joe Bavier and Boureima Balima

JOHANNESBURG/NIAMEY (Reuters) – Days after Burkina Faso, Mali and Niger introduced final month they had been quitting the West Africa political union ECOWAS, Burkina Faso’s army ruler Ibrahim Traore was already naming his subsequent goal: the area’s CFA franc forex.

“It isn’t simply the forex. Something that maintains us in slavery, we’ll break these bonds,” the 35-year-old military captain turned coup chief stated in an interview, posted on YouTube.

The three international locations collectively introduced on Jan. 28 they had been pulling out of the Financial Group of West African States (ECOWAS) after it pressured them to revive constitutional order following a string of coups.

Having already kicked out French troopers and rolled again a U.N. mission in Mali, these states have constantly proven they worth sovereignty over expediency.

Their perspective in direction of the euro-pegged CFA franc seems no completely different, though economists and specialists say dumping the CFA franc could be riskier and considerably extra sophisticated than withdrawing from ECOWAS, a transfer seen as a daring, if probably ill-advised, act of defiance.

Final November, the finance ministers of Burkina Faso, Mali and Niger stated they’d weigh the choice of establishing a financial union and high officers from all three international locations have, to various levels, voiced help for abandoning the forex.

The top of the Niger junta, Abdourahamane Tiani, stated in an interview on state tv on Sunday that abandoning the CFA franc could be an indication of sovereignty and a essential step in shifting away from French “colonisation”.

To take action, nevertheless, would imply far more than merely printing new banknotes.

A newly created central financial institution would wish to handle a fragile transition away from the CFA franc, formulate financial coverage, and determine what to do about greater than $4.6 billion in excellent CFA-denominated regional bonds.

‘THE FRENCH ROBBED US’

The CFA franc currencies – one West African and one other for Central Africa – sit on the coronary heart of an emotional debate over sovereignty and growth in French-speaking Africa.

Proponents hail the CFA franc’s peg to the euro as a assure of macroeconomic stability in one of many world’s most unstable areas.

Critics denounce it as a brake on development and an outdated vestige of French colonial rule: till a 2019 reform, international locations had been required to carry a portion of their overseas reserves with the French Treasury.

However by no means since its inception in 1945 has there been the prospect of such a mass exodus.

“The French have robbed us with the CFA franc. African international locations should definitively break with this forex,” stated Omar Issoufou, a 25-year-old Nigerien who’s finding out electrical engineering within the capital Niamey.

The army takeovers which have swept throughout the arid Sahel area had been pushed by anger over Islamist violence, which Mali’s U.N. mission and a sprawling French anti-militant operation had did not snuff out.

Punishment for the putsches – the imposition of financial sanctions by ECOWAS, together with freezing of a few of Mali and Niger’s property held by the regional central financial institution – fuelled tensions between the brand new regimes and the West African Financial and Financial Union, identified by its French acronym UEMOA.

“The second UEMOA turned a weapon of struggle … I can perceive why these three international locations moved to obviously free themselves from their engagements in direction of the Union,” Hamma Hamadou, a former head of Niger’s tax authority, advised Reuters.

Past ideological problems with sovereignty and sensible issues associated to sanctions, some view shifting away from the CFA franc as a possibility.

“The CFA franc has been very detrimental to those international locations over the long term,” stated Ndongo Samba Sylla of Worldwide Improvement Economics Associates, a community of economists targeted on the International South. “They’ve decrease inflation and additional change charge stability, however they’ve suffered from an over-valued forex.”

All three international locations have largely agricultural economies. However their incapacity to set financial coverage has left their exports uncompetitive, he stated, and hindered industrial growth.

The peg to the euro, in the meantime, makes little sense when the majority of West Africa’s exterior commerce is finished in {dollars}, he added.

‘GREAT DEPRESSION’

Withdrawing from ECOWAS is already trying simpler stated than achieved. Disentangling their economies and funds from UEMOA can be much more delicate.

UEMOA’s eight members deposit their overseas change reserves with the Dakar-based regional central financial institution. These reserves are mutualised as are liabilities, making a dedication of how a lot every nation would be capable to stroll away with a troublesome calculation.

Then there’s the query of CFA-denominated debt. Burkina Faso has over 1.2 trillion CFA francs ($1.99 billion) in excellent bonds. Mali has barely over 1 trillion CFA francs, whereas it is 498 billion CFA francs for Niger.

“We’ll enter right into a zone of turbulence if these international locations pull out,” stated one monetary professional concerned in regional debt issuances, who requested to not be named on account of market sensitivity.

There was no readability, he stated, on the place the bonds could be listed, whether or not they would stay in CFA francs or even when the brand new forex could be convertible.

“There could be a number of issues for the holders of those sovereign bonds,” he stated.

The turmoil would possible go away the three states lower off from future financing from regional and worldwide capital markets, specialists stated. Burkina Faso already referred to as off a bond public sale within the wake of its ECOWAS withdrawal announcement on account of a scarcity of curiosity.

Uncertainty might provoke capital flight and a right away depreciation of a brand new forex. Imports might change into prohibitively costly, fuelling run-away inflation.

“I believe you take 10% to twenty% off your GDP,” stated Charlie Robertson, head of macro technique at London-based FIM Companions. “Leaving the only forex is bringing on the Nice Despair,” he stated, including it will be the worst coverage mistake the international locations might make.

In gentle of those dangers, the juntas are approaching the forex query extra rigorously than their ECOWAS withdrawal.

Two authorities officers from the international locations advised Reuters that the committee charged with finding out a brand new financial union, whereas nonetheless deliberate, had not but met.

Prime Minister Choguel Maiga of Mali – the one one of many three to have ever issued its personal forex – has urged endurance.

When Mali exited UEMOA in 1962 within the wake of independence, its new forex was at parity with the CFA franc, however upon its return to the union in 1984 was value solely half as a lot.

To make sure classes have been discovered, Maiga says the committee wants time to evaluate all of the implications earlier than the nation attracts up plans for a brand new forex with its two neighbours.

“That is what I say to the Malians,” Maiga advised enterprise leaders final month. “Positive, you could have this ardour. You need it. However that is strategic.”

($1 = 604.0000 CFA francs)