By Joe Bavier and Boureima Balima

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

“It is not simply the foreign money. Something that maintains us in slavery, we’ll break these bonds,” the 35-year-old military captain turned coup chief mentioned in an interview, posted on YouTube.

The three nations collectively introduced on Jan. 28 they have been pulling out of the Financial Neighborhood 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 angle in the direction of the euro-pegged CFA franc seems no totally different, though economists and consultants say dumping the CFA franc could be riskier and considerably extra sophisticated than withdrawing from ECOWAS, a transfer seen as a daring, if doubtlessly ill-advised, act of defiance.

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

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

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

A newly created central financial institution would want 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Critics denounce it as a brake on progress and an outdated vestige of French colonial rule: till a 2019 reform, nations have been required to carry a portion of their international reserves with the French Treasury.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 nations should definitively break with this foreign money,” mentioned Omar Issoufou, a 25-year-old Nigerien who’s learning electrical engineering within the capital Niamey.

The navy takeovers which have swept throughout the arid Sahel area have 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, recognized by its French acronym UEMOA.

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

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

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

All three nations have largely agricultural economies. However their lack of ability to set financial coverage has left their exports uncompetitive, he mentioned, 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 wanting simpler mentioned than achieved. Disentangling their economies and funds from UEMOA will probably be much more delicate.

UEMOA’s eight members deposit their international change reserves with the Dakar-based regional central financial institution. These reserves are mutualised as are liabilities, making a willpower 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 nations pull out,” mentioned one monetary skilled concerned in regional debt issuances, who requested to not be named resulting from market sensitivity.

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

“There could be a whole lot of issues for the holders of those sovereign bonds,” he mentioned.

The turmoil would probably go away the three states minimize off from future financing from regional and worldwide capital markets, consultants mentioned. Burkina Faso already known as off a bond public sale within the wake of its ECOWAS withdrawal announcement resulting from an absence of curiosity.

Uncertainty may provoke capital flight and a direct depreciation of a brand new foreign money. Imports may turn out to be prohibitively costly, fuelling run-away inflation.

“I feel you are taking 10% to twenty% off your GDP,” mentioned Charlie Robertson, head of macro technique at London-based FIM Companions. “Leaving the only foreign money is bringing on the Nice Melancholy,” he mentioned, including it will be the worst coverage mistake the nations may make.

In mild of those dangers, the juntas are approaching the foreign money query extra rigorously than their ECOWAS withdrawal.

Two authorities officers from the nations instructed Reuters that the committee charged with learning 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 foreign money – has urged persistence.

When Mali exited UEMOA in 1962 within the wake of independence, its new foreign money was at parity with the CFA franc, however upon its return to the union in 1984 was price 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 foreign money with its two neighbours.

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

($1 = 604.0000 CFA francs)