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!

Devaluation of the CFA (XOF, XAF): Ramblings of Cameroon's Finance Minister.

It may be too late to save the African franc (XAF and XOF). Both the BEAC XAF of Central African Former French colonies and the West African XOF will loose about 40% of their value soon.

Initially programmed for early January 2012, after the African Diaspora would have completed remittances to their families back in Africa for the end of year holiday celebrations, the devaluation may be coming sooner. Monetary authorities are doing all they can to mitigate the premature leak that is causing a halt in the flow if cash into the CFA franc countries, and the massive capital flight that is currently taking place.

In a weak and rambling rebuttal of the imminent devaluation of the CFA franc, Cameroon's Minister of Economy and Finance went on national radio and could not raise any solid argument to prove that the CFA franc won't lose 40% of its value. Speaking in a hesitant manner without any figures to back his assertions, he went on about how Cameroon's economy is doing great and he is the one in charge who makes all the decisions, whereas we all know that Monetary policy in the BEAC and BCEAO regions is tightly regulated from the french treasury and the African Ministers simply execute instructions. In a Freudian slip, France's former prime minister and vice president of the french senate, Jean-Pierre Rafarrin, someone who can speak with authority on this matter said that CFA franc countries stand to benefit from the devaluation!

If a bank is failing and does not have enough cash at hand to fulfill its obligations to its customers, there is no way that it will be publicly acknowledged that the bank is no longer solvent. This is to prevent the classic run on the bank, where everyone who gets wind of the information hastily clears out their account. In fact, in some cases, a healthy bank may go bankrupt because all depositors want their money at the same time.

But this is a global financial tsunami that has already brought down governments in Greece, Spain, Italy, and is knocking on the door of France. The very Euro, the currency the binds the Euro zone together seems to be raveling. Anyone who fails to see that Africa is the next stop of this global financial meltdown simply will land back on earth when they go hungry for a couple of days early next year after the devaluation of the CFA.


The CFA Franc, both the XAF and XOF are pegged to the Euro at a more or less fixed parity. Within the last couple of weeks, looking at historic data, one can see that the Franc has appreciated relative to the Euro. A stronger franc means that ill gotten money from the likes of the son of the Equatorial Guinea strongman Theodorin Nguema could be used to buy luxury cars, while the population remains oppressed and without clean drinking water or medicines.

The elites know too well what will happen when the devaluation of the CFA franc goes into effect. There will be rising costs of basic necessities like rice, cooking oil and gasoline. Riots will ensue, and since most of them went to the polls this year, they could very easily be swept from power by popular revolutions. The internet has brought freedom of speech which has been denied millions of hard working people in the past, and never, never should Africans accept to be deceived by their manipulative leaders.

Speculators disrupt EUR - XAF FOREX as CFA Franc readies devaluation

 

Forex trading in the EUR- XAF pair is heating up. The reason is the not so subtle signs that the CFA Franc will soon be devalued.

This is the currency used by former french colonies in Central and West Africa. It is made up of two Central banks, one in Central Africa, - BEAC and one in West Africa, - BCEAO.


In order to realign trade imbalances and make the area more competitive, monetary regulators are due to devalue the currency early next year. There was a devaluation of 50% of the CFA in 1994, that was more or less well managed, first with the refusal to chance CFA francs by the french monetary authority, then a ban on the external transfer of funds and finally, the devaluation.


With this round of devaluation, the currency is expected to lose about 40% of its value. Officially, it is pegged to the euro at a fixed rate with very minor fluctuations. But since rumors of the impending devaluation hit the internet and a flurry of not so secret meetings were held in Europe with the European Central bank, and  monetary authorities from the XAF and XOF zones, trading in these currencies has been on a roller coaster ride.


George Soros made a killing in 1992 when British authorities dragged their feet when it was evident that the pound sterling had to be devalued. This is what is happening to the XAF and XOF. All manner of speculators will frantically be dumping their francs and influx of new capital will dry up. Although not related, there is already an ongoing strike at the Douala maritime harbor which is one of the main entry points for landlocked countries like the Central African Republic. Public dissent and unrest will likely result as the price of food commodities and finished goods are usually affected both by speculation and the currency value.

If the devaluation of the CFA francs has to go on, it should be sooner rather than later. The countries may lose a few hundred million dollars from lost annual remittances, but if the big boys and hedge funds get into the game, the effect may be exactly the opposite of what the central bankers intended.

Devaluation of the CFA Franc (XAF and XOF) in January 2011

The news is out, don't say you were not warned, in January 2012 or maybe sooner, the CFA franc will be devalued.

The last time this happened, it took most Africans by surprise. In August 1993, the French Central bank refused exchanging CFA Francs, then a month later, currency transfers from the CFA Zone countries was limited, if not banned completely and in early January 1994, the CFA lost 50% of its value.

The population living in the areas of Africa that used this currency had a long stretch of desert to cover after seeing their savings wiped out, and their sovereign debt double overnight. Smart and quick moving businessmen and officials made a killing, transferring huge sums of money out of the CFA Zone, and then back once the dust had settled.

Meanwhile, officials in the Finance ministries denied any claims of devaluation to stem capital flight. 

The paradigm has now shifted. In a world of 24 hour news cycles, proletarian internet access, instant telephone connectivity and widespread e-business practices, it is hard to keep secrets for long.

Anyone who has not been living under a rock or in the Amazon has heard and seen the travails of the Euro, to which the CFA is pegged. The growing OWS (Occupy Wall Street) movement has led to riots worldwide. Africa is not spared from this global economic chaos. The citizenry in poor African countries is spared the minutiae of macroeconomics and globalization. Their leaders prefer them uninformed, so they are easier to manipulate and control. This is like having cancer, with three months left to live and your doctor does not inform you.

In their genteel world of artificial bliss, they are not aware of the huge deficits many of their governments have run up. Cameroon recently issued a bond offer to raise CFA 50 billion in funds, ostensibly for some infrastructural projects. It may be a lame attempt to sucker in some investors who will soon realize they are holding junk bonds when the CFA gets devalued. But we have to give it to that country's economy and finance minister for trying to stick it up to the MAN.

It is too late for some who have sent thousands of dollars to Africa for the end of year holidays. This time of year is historically when the Dollar to Euro parity is lowest, and ultimately you get less bang per buck. It may be more sensible to wait until late January 2012 to send cash to Africa, for you will get more of the devalued CFA per dollar or Euro.

Nigeria is being open, and its central bank governor Lamido Sanusi has publicly stated that the Naira will be devalued 3%-5% in 2012. 

And a final word, African leaders need to be more transparent in their dealings with the citizens of their countries. If people could understand how much of a deficit their country has, see its changes over time and how it impacts their daily lives, they will be more willing to work hard and make a fair share of sacrifices to help their country grow. Bad leaders will be exposed (most of the CFA country leaders are) and get voted out of office so this is clearly not going to happen in Africa.

Therefore, what it comes down to is a situation where every man fights for himself. Do yourself a favor, keep all of your money out of the CFA countries until the currency gets devalued, which is what's going to happen in about 30 days. The cat is out of the bag, and the devaluation may come much sooner rather than later. You have been warned.