Equatorial Guinea is a tiny African nation located on the Gulf of Guinea. The Central African nation has had several currencies in the past. Currently, its official legal tender is the Central African franc. The Central African Franc replaced Equatorial Guinean Ekwele in 1985.
Equatorial Guinea was Spanish Colony until October 12th, 1968 when it gained independence. During the colonial period, the nation maintained strong trade ties with Spain, Germany, France, and the UK. Equatorial Guinea was a famous trade route for the West African slave trade. The country also exported coffee, cocoa, and timber to European countries. The traders used the Spanish Peseta introduced to the country by the colonial masters. Soon after independence, Equatorial Guinea abandoned the Spanish Peseta and adopted the Equatorial Guinean Peseta. The Equatorial Guinean Peseta bore a close resemblance to the Spanish Peseta. Additionally, its value matched the Spanish Peseta’s value. The currency was in the form of three bank note denominations and four coin denominations. The coins and banknotes had the portrait of Equatorial Guinea’s first president, Francisco Macias Nguema. On August 3rd, 1979, Macias Nguema was dethroned and his portrait removed from the currency. Equatorial Guinea replaced the Peseta with the Guinean Ekwele. The exchange rate for the Peseta to the Ekwele was at par. Ekwele was the official currency of Equatorial Guinea until 1985 when the country joined the Franc Zone.
Central African Franc
Equatorial Guinea was the first non-French speaking nation to accede to the Franc Zone. It switched its currency from Ekwele to Central African Franc. The Central African Franc is also used as the legal tender in Cameroon, Chad, Republic of Congo, Central African Republic, and Gabon. The Central African Franc shares a lot of features with the West African Franc including its exchange rate to the Euro. The two currencies are backed by the Treasury in France. The six nations that use the Central African Franc rely on one primary financial institution, the Bank of the Central African States based in Yaoundé, Cameroon. The bank mints and issues the Franc to the six member states. The currency has a fixed exchange rate to the Euro where one euro is equivalent 655.95 Central African Francs.
Benefits of the Central African Franc
Since Equatorial Guinea adopted the Central African Franc, the country had enjoyed stable rates of inflation unlike before when the inflation rate went as high as 40 percent. Business ties with France and other European nations have improved due to the close link between the Central African Franc and the Euro. Furthermore, use of a common currency has increased trade between the Central African Nations.
Limitations of the Central African Franc
The use of the Central African Franc is heavily criticized by some economists. Its fixed status to the Euro is blamed for underdevelopment in the countries where it is used. The currency is also said to be overvalued. It favors importers and discourages exports which are a source of income to the Central African States. Another limitation of the Central African Franc is that the member states have no control over the movement of the currency due to its fixed link to the Euro. The Central African states depend on the monetary policies of the European Central Bank.