(Ecofin Agency) - In 2024, the euro steadily weakened against the dollar, dropping from 1.12 USD/EUR in September to about 1.02 USD/EUR by January 2025, directly causing the CFA franc to lose ground against the dollar.

The CFA franc went through a turbulent year in 2024, with significant ups and downs in the foreign exchange market. The common currency used by eight West African nations lost 4.06% of its value against the U.S. dollar and 4.29% against the Guinean franc. However, it surged by 40.30% against Nigeria’s naira, reflecting both global currency trends and regional economic challenges.

The Fed’s Tight Grip

The CFA franc weakened against the U.S. dollar largely because of America’s tight monetary policy. The Federal Reserve kept interest rates high for most of the year, making the dollar more attractive to investors and pulling capital into dollar-denominated assets. This put pressure on the CFA franc, just as it did on other emerging market currencies.

The Central Bank of West African States (BCEAO) had little room to counteract the trend. Even though the region’s foreign exchange reserves rose by 23% in December, the BCEAO remained constrained since its monetary policy is tied to the euro. The euro itself lost ground against the dollar in 2024, dropping from a high of 1.12 USD/EUR in September to around 1.02 USD/EUR in January 2025. This decline automatically weakened the CFA franc against the dollar.

The same trend played out against the Guinean franc, with the CFA losing 4.29%.

The Naira’s Collapse

The biggest contrast came from Nigeria. The CFA franc soared by 40% against the naira, highlighting the economic struggles of Africa’s largest economy. Nigeria was hit hard by soaring inflation—above 27% in December—along with foreign exchange shortages and a monetary policy that failed to stabilize the situation.

Reforms introduced by President Bola Tinubu, including the removal of the country’s official exchange rate controls, were not enough to stop the naira’s slide. By the end of the year, the currency had lost nearly half its value against the dollar.

A Short-Term Breather for the CFA Franc?

Despite these challenges, the BCEAO ended the year on a positive note. The region’s foreign reserves rose from CFA2.94 trillion in November to CFA3.63 trillion in December, a nearly 23% increase. This boost could help stabilize the CFA franc in the coming months by improving the region’s ability to cover imports.

However, uncertainties remain for 2025. With continued fluctuations in the dollar, heavy reliance on imports, and economic instability in the region, the CFA franc’s trajectory will depend on decisions by major central banks and how West African economies adapt to global trends.