CFA Franc

• XAF and XOF are currencies used in several countries in Central and Western Africa.
• XAF is used in Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea and Gabon.
• XOF is used in Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Senegal, Niger and Togo.
• There is no single central bank setting a monetary policy.
• If anything, one could consider that XAF and XOF are driven by ECB monetary policy, as they are pegged to EUR.

XAF and XOF are commonly referred to as franc CFA (Communauté française d’Afrique, or French Community of Africa).Opinions vary on the utility of the CFA franc for the countries that use it. Some contend that it offers a certain degree of stability to otherwise volatile economies, but others are of the opinion that using a currency pegged to EUR does not allow these countries to develop a monetary policy of their own (as the emerging economies involved have very different economic cycles than the countries using the euro).

Hedges in XAF/XOF are almost non-existent. For spot sale and purchase, there is a small and illiquid market. Due to this lack of liquidity, real bid or offer prices can divert quite a bit from the official peg at 655.957 against EUR. This peg is a result of parity, whereby 100 XAF/XOF were previously equal to 1 FRF (French franc).For years, there had been speculation that some African currencies would have to abandon the peg with EUR, and, in doing so, XAF and XOF usage would become obsolete.

There are no special restrictions on the purchase and sale of the CFA franc, but there are practical hurdles when it comes to easily trading in this currency, namely the lack of liquidity.