Devaluation of the CFA: Lessons from Fotso and Kontchou

 Any financial regulatory authority knows that to carry out the devaluation of a currency is a delicate task. All simulations are run in a tightly controlled manner and then one day, and without any warning, the news of the devaluation is brought to light.

This is useful because it prevents speculators from going bullish on foreign currency and tying up local capital markets. The internet has revolutionized the acquisition and modelling of data that is used in FOREX markets. As such, a meeting between African and European Central bankers may signal a fundamental change in monetary policy. A major sovereign debt crisis is now sweeping across Europe, and the Euro, the common currency used by 17 of the 27 member countries of the EUROZONE is under threat.

Africa comes into the picture because the CFA franc which is in wide use in Central and West Africa is directly pegged by a fixed parity to the Euro. While austerity measures are imposed on Euro countries, they must somehow continue to get commodities, but not at current prices. As such, an immediate consequence of the European Sovereign Debt Crisis of 2011 will be the devaluation of the CFA Franc. Thus, europeans will be able to buy oil, coffee, cocoa and bananas very cheaply form the CFA Franc countries. 

News of the imminent devaluation of the CFA franc is now drying up capital markets, and slowing down the transfer of funds by the African Diaspora back to relatives in their countries of origin, pending the devaluation, while wealthy Cameroonians, mostly corrupt relatives of Paul Biya are channeling funds out of the country at an unprecedented rate. In 1994, Mexico was in Cameroon's position today, and through mismanagement of what would have been a painless devaluation of the peso found itself facing default.

Sentient of the possibility this may happen, Cameroon's minister of economy and finance cooked up a clever scheme to make the most out of the situation. He floated Cameroon treasury bonds (only local banks bought in - were they coerced?) that were subscribed to the tune of about $16 million for the first round. He hopes to repeat the feat four more times, ending December 15, 2011, giving him just enough time to do some "Cameroonian Magic" on the International Forex Markets before the CFA franc gets devalued on the 1st of January 20112.

But can he be trusted? He says the "scheme" of issuing treasury bonds shows that the Cameroonian economy is healthy, and it provides a means for the average Cameroonians to make some money with their dormant savings. The Cameroon Treasury Bonds are sold at the banks that have subscribed and give a return of about 2,5%.

But here is where the curiosity begins. The term of the treasury bonds are suspiciously short. Typically bonds will be issued by sovereign entities with terms of about 3 years, 5 years, 10 years or more. The maturity dates for the Cameroon Treasury bonds are just too short to make any sense. It is the same kind of term a "money doubler" or "Shiba Man"  will promise his victim.

We have not forgotten about Cameroon Bank, Credit Agricole, BICIC, and other Banks that went under, while some government officials lined their pockets. We have not forgotten about the 1994 World Cup in the USA when Kontchou Koumegni wiped out almost a million dollars in cash, and then got promoted as Chairman of the Board of Directors of the University of Douala.

This umpteenth scheme by the Minister of Economy and Finance looks like it will burn some serious holes in the savings of Cameroonians (Cameroonians have very little in savings and there is no way the amounts raised could have been from the savings of ordinary Cameroonians. On the day salaries are paid, civil servants line up at the bank, cash all their money on the spot and take it home). If he wants to play a high stakes poker game like Yves Michel Fotso did during the 1994 devaluation (he got arrested for money laundering), he should do so with the money of his friends (like he is right now). 

Trying to play "wash wash" with the savings of his friends while passing under the radar of the IMF, World Bank, and the French Treasury (trustee to the XAF and XOF) casting the funds as from ordinary Cameroonians will ultimately cost him his job. Remember the Russian Financial Crisis of 1998. A word to the wise is enough. We have 33 days to go!