1994 CFA franc devaluation

The 1994 devaluation was the decision to halve the value of the CFA franc, moving from 50 to 100 CFA francs per French franc. On January 11, 1994, in Dakar, the heads of state of the franc zone agreed to halve the value of their currency: from January 12, one French franc was worth 100 CFA francs instead of 50, a parity unchanged since 1948. The decision hit both zones, West Africa and Central Africa, on the same day. The Comorian franc was devalued separately, by a smaller proportion. For the market, the episode remains the benchmark of what a fixed peg can turn into under pressure. An African debtor's foreign currency debt doubled overnight in local currency, while its revenue did not move. Importers who had ordered in French francs or dollars before January 11 found themselves with an invoice twice as heavy to settle. Credit insurers saw delays and defaults from buyers who had been solvent the day before, and splitting commercial risk from political risk became a matter for each file. On the local insurance side, premiums collected in CFA francs lost half their value against claims and reinsurance cessions denominated in foreign currency. Policy wording matters here: an inconvertibility cover does not respond, since the currency remained convertible and transferable, at the new rate. Devaluation is an exchange loss, which the CPRI (credit and political risk insurance) market excludes, and it is handled through currency hedging or the contract's currency clause. Practitioners also remember that the decision was prepared in secret, and that no public indicator gave the date. Any analysis of the CFA franc today starts from this precedent, even though the peg to the euro has held since 1999.