(Ecofin Agency) - The fixed parity between the CFA franc and the euro is often presented as a guarantee of stability. But in an international currency market dominated by the U.S. dollar, the safety net is sometimes fragile. 

In recent months, the Euro lost 14.2% against the US dollar, according to forex data. As the CFA Franc, used by CEMAC and WAEMU countries, is pegged to the Euro, it was dragged in the path of that negative performance. According to many analysts, the situation is not likely to improve soon since the European Central Bank (ECB) has maintained its asset buyback policy. The policy lowers interest rates and makes loans cheaper but, it drives investors who are already burnt by rising prices (inflation) away. 

At the same time, in the US, the monetary authorities are raising interest rates to make the dollar more attractive despite record inflation. Even though CEMAC and WAEMU countries take no part in the ECB’s monetary policies, they have to deal with the implications. 

The EURO’s decline against the US dollar means the value of the CFA Franc is also down against the dollar. This is beneficial for exporters because they will have more local money in the local currency for products exported at the same price. However, importers will have to spend more  CFA Franc to get dollars for international transactions.  

The same scenario applies to transactions in Yuan renminbi and the dirham, used respectively by China and the United Arab Emirates, the two main CEMAC and WAEMU suppliers.

Companies consolidating their financial results in US dollars reveal that their 2021 performance was affected by currency exchange rates. As a result, performances were almost stable year-on-year. Such fact is likely to alert investors to currency exchange risks when evaluating investment opportunities in the CEMAC and WAEMU regions.  

The evolution of CFA Franc rates also impacted trades between CEMAC and WAEMU countries and their neighbors like Ghana and Nigeria. However, the outcomes are much dependent on the evolution of the commercial partners’ currencies against the US dollar. In Nigeria, the naira appreciated slightly against the dollar while in Ghana, the cedi lost 17.7% against the US currency. 

I.Linge