Historical Sketch

In the late 18th century, the highland Kingdom of Imerina conquered the coastal regions and united the island of Madagascar under a single rule. In 1883, France invaded the island under a pretext. After more than a decade of warfare the monarchy was overthrown, and Madagascar became a French colony in 1897. After the Second World War, Malagasy nationalists revolted against the colonial rule, but it took until 1960 that Madagascar attained.

Monetary History Overview

Around 1800 the Kingdom of Imerina (Madagascar) introduced an accounting system based on the Spanish Dollar that came flowing in through long-distance trade. The unit of account was called 1st Malagasy Ariary and corresponded to a full-weighted Spanish Dollar. As there were no subsidiary coins imported nor produced locally, foreign silver coins were chopped up and traded for bullion. Three (non-decimal) fractions of the Spanish Dollar were used as sub-units for accounting in the Ariary system. The state issued set of 9 metal weight stones together with an official balance to ensure correctness and uniformity of the transactions. The system remained in place throughout the 19th century. In the early 1890 attempts were made to replace the chopped silver by milled subsidiary coins. This did not get beyond trials as the Malagasy kingdom was overthrown by the French in 1897.

The colonial administration introduced French accounting in 1900. The Ariary system was abolished, full Spanish Dollars were exchanged into French silver coins, the cut silver by weight at an about 15% lower rate. In 1926, the Bank of Madagascar began operations and issued paper money. The 1st Madagascan Franc was at par with the French Franc, its convertibility into metropolitan currency was limited, however. It was also used in the neighbouring Comoros.

After the Second World War, France reorganised the monetary system of its colonies. In December 1945, colonial currencies were created for West Africa, Equatorial Africa and Indian Ocean territories (Madagascar, Comoros, Reunion). They all were at par with each other, but only partly followed the 1945 devaluation of the French Franc and therefore appreciated against the metropolitan currency. In 1948, the three CFA Franc variants repegged to the Pound Sterling to decouple from further devaluations in France and repegged in November 1949, after the French Franc had stabilized. The Madagascan CFA Franc was issued by the Bank of Madagascar, renamed into Bank of Madagascar and Comoros in 1950. The issuing privilege was never extended to Reunion, which therefore had its own variant of the CFA Franc.

In 1960, Madagascar attained independence. Two years later, the Currency Institute of Madagascar began operations, and in July 1963, the 2nd Malagasy (Madagascan) Franc replaced the colonial currency at par. The peg to the French Franc remained unchanged until 1982, when the exchange rate was floated. Throughout the 1980s and again in the late 1990s the rate dropped strongly. Another 35% dive in 2004 was accompanied by a currency redenomination. In 2005, the 2nd Malagasy (Madagascan) Ariary equal to five Francs became the new unit of account. Otherwise, the currency policy did not change. The Ariary has continued its slow depreciation since then.

Madagascar joined the International Monetary Fund (IMF) on 25.09.1963.

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