Recommendation for a Council Decision concerning exchange rate matters relating to the CFA franc and the Comorian franc
Date: 1998-07-01
Institutions: European Commission
Subjects: Comoros, WAEMU countries, development policy, exchange transaction, monetary cooperation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 01.07.1998 
COM(1998) 412  final 

Recommendation for a 

COUNCIL DECISION 

concerning exchange rate matters 
relating to the CFA franc and the Comorian franc 

(presented by the Commission) 

Recommendation  for a Council Decision concerning exchange rate matters 
relating to the CFA franc and the Comorian franc 

EXPLANATORY  MEMORANDUM 

France  has  concluded  several  agreements  concerning  exchange  rate  matters  with  the 
UEMOA  (Union  économique  et monétaire  ouest-africaine),  the  CEMAC  (Communauté 
économique et monétaire de l'Afrique  Centrale) and with the Comores1. 

The  existence  of  a  common  currency  in  this  area,  which  is  a  consequence  of  the 
agreement  of  France  and  the  CFA  zone  countries,  is  a  major  complement  to  the 
Community's  development  policy.  It  is  in  line  with  its  effort  to  enhance  regional  co 
operation  and  growth  through  deeper  economic  interdependency  and  solidarity,  e.g.  in 
the UEMOA. As such, it increases the efficiency  of the Community's significant  support 
for  the  participant  countries,  whether  in  the  form  of  national  indicative  programmes, 
structural  adjustment  support or regional  funds. 

The  use  of  a  common  currency  is  of  course  a  monetary  matter.  But,  in  this  particular 
case,  it  encompasses  a  true  development  dimension,  through  complementing  the 
Community's  development  strategy  aiming  at  achieving  growth, poverty  alleviation  and 
integration in the world economy through regional integration. 

As  from  1  January  1999,  the  Community  will  have  the  exclusive  competence  for 
monetary  and  exchange  rate  matters  in  the  Member  States  adopting  the  euro.  Any 
agreement  with  third  countries  concerning  monetary  or  foreign  exchange  rate  matters 
needs to reflect  this allocation of competence. Therefore, the Community must decide on 
the  future  of  these  agreements.  For  this  purpose,  the  Commission  is presenting  a  draft 
Council  Decision  which  allows  France  to  maintain  the  present  agreements  concerning 
exchange rate matters relating to the CFA  franc  (issued by the Banque Centrale des Etats 
de  l'Afrique  de  l'Ouest  and  the  Banque  des  Ftals  de  l'Afrique  Centrale)  and  the 
Comorian  franc (issued by the Banque Centrale des Comores). 

Convention de coopération monétaire du 23 novembre  1972 entre les Etats membres de la Banque des 
Etats  de  l'Afrique  centrale  (BEAC)  et  la  République  française,  as  amended;  Convention  de  compte 
d'opérations  du  13  mars  1973 entre  le  ministre  de  l'Economie  et  des  Finances  de  la  République 
Française et le Président du Conseil de l'administration  de la Banque des Etats de l'Afrique  Centrale, 
as  amended;  Accord  de  coopération  du  4  décembre  1973  entre  la  République  française  et  les 
Républiques  membres  de  l'union  monétaire  ouest-africaine,  as  amended;  Convention  de  compte 
d'opérations  du 4  décembre  1973 entre  le ministre  de  l'Economie  et  des Finances  de  la  République 
Française  et le Président  du conseil  des ministres  de l'Union  monétaire  quest-africaine,  as  amended; 
Accord de coopération monétaire du 23 novembre  1979 entre la République française  et la République 
fédérale  islamique  des  Comores,  as  amended;  Convention  de  compte  d'opérations  du  23  novembre 
1979  entre  le  ministre  de  l'Economie  et  des Finances  de  la  République  Française  et  le  ministre  des 
Finances, de l'Economie et du Plan de la République fédérale des Comores, as amended. 

I. General considerations 

Article  109  (3)  of  the  Treaty  stipulates  that  "By  way  of  derogation  from  Article  228, 
where  agreements  concerning  monetary  or  foreign  exchange  regime  matters  need  to  be 
negotiated by the Community with one or more States or international  organizations, the 
Council, acting by a qualified  majority,  on a recommendation  from  the Commission  and 
after  consulting  the  ECB, shall  decide the arrangements  for  the negotiations  and  for  the 
conclusion of such agreements." 

The  existing  agreements  between  France  and  the  UEMOA  (Union  économique  et 
monétaire  ouest-africaine),  the  CEMAC  (Communauté  économique  et  monétaire  de 
l'Afrique  Centrale) and with the Comores include a fixed parity of the CFA franc  and the 
Comorian  franc  against the French franc, for which the euro will be substituted as from 1 
January 1999. 

These  agreements  are unlikely  to have  any  material  effect  on the  conduct  of the  single 
monetary  and  exchange rate policy  of the euro area. The guarantee  of convertibility  for 
the CFA franc  and the Comorian franc  is based on a budgetary commitment of the French 
Treasury.  Each of the central banks participating  in the agreements (Banque Centrale des 
Etats de l'Afrique  de l'Ouest, Banque des Etats de l'Afrique  Centrale et Banque Centrale 
des  Comores)  holds  an  operation  account  with  the  French  treasury  which  provides,  in 
principle, an unlimited overdraft  facility  to the respective central bank. At the same time, 
these  central  banks  are  obliged  to  hold  a  large  part  (in  principle  at  least  65%)  of  their 
foreign  assets in their operation account. 

The  Banque  de  France  which  will  be,  as  from  1 January  1999,  an  integral  part  of  the 
European  System  of  Central  Banks has  no  obligation  to  guarantee  the  convertibility  of 
the  CFA  franc  and  the  Comorian  franc.  The  continuation  of  the  present  agreements 
should therefore not stand in the way of a smooth functioning  of EMU. 

II. Comments on the articles 

Article  1 

This  article  reflects  the  fact  that  the  agreements  between  France  and  UEMOA  (Union 
économique  et  monétaire  ouest-africaine),  CEMAC  (Communauté  économique  et 
monétaire de l'Afrique  Centrale) and the Comores concerning  exchange rate matters  fall 
in the competence of the Community as from  the date of the introduction of the euro. The 
article provides that France may continue the present agreements. 

Article 2 

This article provides that France and the African  signatories to the agreements shall keep 
the  sole  responsibility  for  the  implementation  of  the  agreements  concluded  between 
France and the UEMOA, the CEMAC and the Comores. The article does not address any 
modifications  of such agreements. 

Article 3 

This  article  provides  that  France  shall  keep  the  Commission  and  the  Economic  and 
Financial  Committee  informed  on  a  regular  basis  about  the  implementation  of  the 
agreements. The degree of regularity should be such, that any developments which might 
have  an  impact  on  the  smooth  functioning  of  the  single  monetary  and  exchange  rate 
policy are reported  in good time. 

In  case  of  changes  of  the  parity  between  the  French  franc  and  the  CFA  and  Comorian 
francs, France has to inform  in advance the Economic and Financial Committee. 

Article 4 

Article  4  and  5 set  rules  for  any  future  changes  of the  agreements  between  France, the 
UEMOA,  CEMAC  and  the  Comores.  A  distinction  is  drawn  between  changes  which 
modify  the nature or scope of the agreements and those which do not. Article 4 deals with 
the  latter  type  of  changes.  In  such  cases,  France  may  agree  to  changes  after  having 
informed the Commission and the Economic and Financial Committee. 

By  delegating  to  France  the  competence  to  negotiate  and  to  agree  such  changes  to  the 
existing  agreements, the Council  makes use of its power to decide the arrangements  for 
the  negotiation  and  for  the  conclusion  of  agreements  concerning  monetary  or  foreign 
exchange regime matters. 

Article 5 

This  article  refers  to  possible  future  changes  of  the  agreements  between  France,  the 
UEMOA, the CEMAC and the Comores which change the scope or nature of the present 
agreements. 

France  is  required  to  submit  such  plans  to  the  Commission  and  the  Economic  and 
Financial Committee. The Commission shall submit to the Council a recommendation  for 
a  decision.  In  accordance  with  Article  109  (3),  the  ECB  will  be  consulted  before  any 
Council decision. 

All  changes  which  go  beyond  technical  changes  and  which  constitute  changes  of  the 
nature or  scope  of these  agreements will therefore  have to be  approved  by the  Council. 
This applies to any modification  of the composition of countries which are parties to the 
agreements,  and  to  any  modification  of  the  principle  of  free  convertibility  at  a  fixed 
parity  between  the  euro  and  the  CFA  and  Comorian  francs,  which  is  guaranteed  by  a 
budgetary commitment of the French Treasury. 

Article 6 and 7 

This article ensures that  the decision  addressed  to  France will be  applicable  as from  the 
first  day of the third stage of Economic and Monetary Union, i.e. as from  1  January  1999. 
This is also the first day on which Article  109 (3) is applicable. 

Recommendation  for  a Council  Decision  [  ] of... 
concerning  exchange  rate matters  relating to the CFA  Franc 
and the Comorian  Franc 

The Council of the European Union, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article  109 (3) thereof, 

Having regard to the recommendation  from the Commission, 

Having regard to the opinion of the European Central Bank, 

(1)  Whereas  according  to Council  regulation  (EC) No 974/98  of 3 May  19981  the  euro 
will  be  substituted  as  from  1 January  1999  for  the  currency  of  each  participating 
Member State at the conversion rate; 

(2)  Whereas  the Community  will  have the competence  for  monetary  and  exchange  rate 

matters in the Member States adopting the euro as from  the same date; 

(3)  Whereas the Council is to determine the appropriate arrangements for the negotiation 
and  conclusion  of  agreements  concerning  monetary  or  foreign  exchange  regime 
matters; 

(4)  Whereas  France  has  concluded  several  agreements  with  the  UEMOA  (Union 
économique  et  monétaire  ouest-africaine),  the  CEMAC  (Communauté  économique 
et  monétaire  de  l'Afrique  Centrale)  and  with  the  Comores  which  are  intended  to 

1 OJL  139, 11.5.1998, p.l 

guarantee the convertibility of the CFA and Comorain francs into the French franc at 
a fixed parity2; 

(5)  Whereas the euro will be substituted  for the French franc on  1  January  1999; 

(6)  Whereas  the  convertibility  of  the  CFA  and  Comorian  francs  is  guaranteed  by  a 
budgetary  commitment  of  the  French  authorities;  whereas  the  French  authorities 
have  given  the  assurance  that  the  agreements  with  the  UEMOA,  the  CEMAC  and 
with the Comores have no substantial financial implications for France; 

(7)  Whereas these agreements  are unlikely to have any material  effect  on the monetary 
and exchange rate policy of the euro area; whereas in their present  form  and state of 
implementation  these agreements therefore  are unlikely to present  any obstacle to a 
smooth functioning  of Economic and Monetary Union; 

(8)  Whereas France and the African  signatories to the agreements are willing to continue 
the  present  agreements  after  the  substitution  of  the  euro  for  the  French  franc; 
whereas  it  is appropriate  that  France  may continue  the present  agreements  after  the 
substitution  of  the  euro  for  the  French  franc  and  that  France  and  the  African 
signatories to the agreements implement them under their sole responsibility; 

(9)  Whereas  it is necessary  for the Community  to be informed  on a regular basis  about 

the implementation and envisaged modifications of the agreements; 

(10) Whereas it is necessary to involve the competent  Community bodies before  making 
any changes to the nature or scope of the present agreements; whereas this applies to 
the  membership  of  the  agreements  and  to  the  principle  of  free  convertibility  at  a 
fixed  parity between the euro and the CFA and Comorian francs, convertibility being 
guaranteed by a budgetary commitment of the French Treasury; 

Convention  de coopération  monétaire  du  23  novembre  1972 entre  les  Etats membres  de  la Banque  des 
Etats  de  l'Afrique  centrale  (BEAC)  et  la  République  française,  as  amended;  Convention  de  compte 
d'opérations  du  13  mars  1973 entre  le  ministre  de  l'Economie  et  des  Finances  de  la  République 
Française  et  le  Président  du  Conseil  de  l'administration  de  la  Banque  des  Etats  de  l'Afrique  Centrale, 
as  amended;  Accord  de  coopération  du  4  décembre  1973  entre  la  République  française  et  les 
Républiques  membres  de  l'union  monétaire  ouest-africaine,  as  amended,  Contrition  de  ~OÎ. J.+* 
d'opérations  du  4  décembre  1973  entre  le  ministre  de  l'Economie  et  des  Finances  dr  T?  Rt7  ''  h 
Française  et  le  Président  du  conseil  des  ministres  de  l'Union  monétaire  que-,'  ifi  c'n*u  ^ 
Accord  de coopération  monétaire  du  23 novembre  1979  entre  la République  fr .v ,<>< ^  e 
fédérale  islamique  des  Comores,  as  amended;  Convention  de  compte  d'opéntr 
1979  entre  le  ministre  de  l'Economie  et  des  Finances  de  la  République  Fjunvaiso  t 
Finances,  de  l'Economie  et du Plan  de la République  fédérale  des Comores, as  amended 

jt--
.  .nr't 

-, ..  .  . 

"i  »k 

le  'ii 

** 

s  (^T-u 

(11) Whereas  Member  States  may  conclude  international  agreements,  without  prejudice 
to  Community  competence  and  Community  agreements  as  regards  economic  and 
monetary union, 

HAS ADOPTED THIS DECISION: 

Article 1 

Upon  the  substitution  of the  euro  for  the French  franc,  France  may  continue  its present 
agreements  concerning  exchange  rate  matters  with  the  UEMOA  (Union  économique  et 
monétaire  ouest-africaine),  the  CEMAC  (Communauté  économique  et  monétaire  de 
l'Afrique  Centrale) and with the Comores. 

France and the African  signatories to the agreements shall keep the sole responsibility  for 
the implementation of these agreements. 

Article 2 

Article 3 

The competent French authorities shall keep the Commission, the European Central Bank 
and  the  Economic  and  Financial  Committee  informed  on  a  regular  basis  about  the 
implementation of the agreements. The French authorities shall inform  the Economic and 
Financial  Committee  prior  to  changes  of  the  parity  between  the  euro  and  the  CFA  or 
Comorian franc. 

Article 4 

France may negotiate and conclude modifications  to the present agreements to the extent 
that the nature or scope of the agreements are not changed. It shall inform  in advance the 
Commission and the Economic and Financial Committee of such changes. 

3-

Àrticïc 5 

Any plans to change the nature or scope of these agreements shall be submitted by France 
to the Commission  ant! the  Economic  and  Financial  Committee.  Such  plans require the 
approval of the Council on the basis of a recommendation  from the Commission and  after 
consultation of the European Central Bank. 

This decision shall apply as from 1  January 1999. 

Article 6 

This decision is addressed to France. 

Article 7 

Done at Brussels, 

For the Council 

The President 

ISSN 0254-1475 

COM(98) 412 final 

DOCUMENTS 

EN 

09  06  11 

Catalogue  number  :  CB-CO-98-431-EN-C 

ISBN  92-78-37877-1 

Office  for Official  Publications of the European  Communities 

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