New WAEMU Regulation: Balancing Global Openness and Currency Stability

The step is significant and deserves to be highlighted: after several years of waiting, on December 20th, 2024, the Ministers in charge of Finance of the member countries of the West African Economic and Monetary Union (WAEMU) adopted a new Regulation No. 06/2024/CM/WAEMU relating to the external financial relations of the WAEMU member states comprising Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo (the “R06”).

The R06, which replaces the R09 adopted in 2010, continues the dynamic of opening up WAEMU to the rest of the world while ensuring the preservation of the value of the common currency, the FCFA, by guaranteeing compliance with the centralization of foreign exchange reserves.

The new regulation takes up the previous provisions dealing with cooperation between WAEMU and ECOWAS

The opening to the rest of the world is thus manifested by a better precision of regulated activities and the extension of the scope of application of the regulation to new activities. Thus, economic actors with the status of non-residents can carry out direct or portfolio investment operations (placements) in the WAEMU. As for residents, they can carry out direct or portfolio investment operations outside the WAEMU, loan operations, deposits, commercial credits and advances, sureties or guarantees and acquisition of receivables with non-residents, and import and export goods and services.

In addition, the regime of international trade in goods as well as pre-financing operations for the export of goods and services by a non-resident for the benefit of a resident is specified in order to formalize the practice in force and to facilitate the completion of these transactions by residents with the rest of the world. Furthermore, the possibility is offered to non-residents to carry out transactions on derivative instruments with WAEMU banks, by concluding over-the-counter contracts to cover the exchange risk relating to their investment or other operations in WAEMU member countries.

It should be noted that the new regulation takes up the previous provisions dealing with cooperation between WAEMU and ECOWAS within the framework of the West African Monetary Agency (WAMA), indicating that exchange transactions and settlements of any nature between, on the one hand, WAEMU member states and, on the other hand, other ECOWAS member states, are carried out in accordance with the texts governing WAMA.

When we know that WAMA is a specialized institution of ECOWAS composed of the central banks of the member states including the BCEAO, we can see the legal difficulties that the exit of Burkina Faso, Mali and Niger from ECOWAS will not fail to pose in BCEAO-WAMA/ECOWAS relations.

As for the guarantee of compliance with the centralization of foreign exchange reserves, it is ensured by the obligations of domiciliation of certain operations reaching a ceiling to be determined by the BCEAO and of transfer of the related currencies.

This is the case for the obligation of domiciliation of operations of export of goods and services to foreign countries, of direct or portfolio investment operations reaching a certain ceiling (by residents abroad or by non-residents in the Union), of loans or borrowings with foreign countries, of sureties or guarantees and of acquisition of claims by residents on non-residents.

The same applies to the obligation of transfer of foreign currencies to the BCEAO which has been extended to the proceeds of direct or portfolio investment operations of non-residents in a WAEMU Member State and of borrowing operations of residents from non-residents as well as to dividends received by residents abroad.

To ensure the application of R06, the liability regime of actors is strengthened in the sense of its hardening. Thus, only banks established on the territory of a WAEMU member State can have the capacity to serve as an intermediary in financial transactions with foreign countries, by approval of the Minister responsible for Finance, after the approval of the BCEAO.

They are jointly and severally liable with importers, exporters and operators, for strict compliance with the rules governing the clearance of import and export domiciliation files for goods as well as foreign direct investment or portfolio operations in a WAEMU State and borrowing by a resident from a non-resident, which will not fail to raise difficulties when we know that banks are only intermediaries.

In the same dynamic, from now on, only legal entities can exercise the activity of authorized manual exchange, which is better regulated. The major innovation relates to the possibility of suspension or withdrawal of the authorization of a bank as an authorized intermediary in the event of an infringement of R06. We had indeed become accustomed to the fact that a bank is automatically an authorized intermediary. On this point, R06 reminds us that a bank could be prohibited from carrying out financial transactions with foreign countries, as a sanction. This is clearly a sword of Damocles that weighs heavily on the bank

Pending the adoption of the implementing instructions, the new R06 is therefore part of the dynamic of better supervising and legally securing the movement of capital to third countries by economic actors with resident status and, in WAEMU, by economic actors with non-resident status. Drawing the consequences of the non-effective repatriation of foreign currency and its transfer to the BCEAO to supply WAEMU’s foreign exchange reserves, R06 tightens the regulations applicable to the actors responsible for its implementation.

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(Featured image by Daria Nepriakhina via Unsplash)

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First published in Financial Afrik. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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