Front Matter

Front Matter

Author(s):
Anne Gulde, and Charalambos Tsangarides
Published Date:
April 2008
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    © 2008 International Monetary Fund

    Production: IMF, Multimedia Services Division

    Cover design: Vlad Herrera

    Figures: Julio Prego and Jenny Geanakos

    Composition: Alicia Etchebarne-Bourdin

    Cataloging-in-Publication Data

    The CFA franc zone: common currency, uncommon challenges/editors, Anne-Marie Gulde, Charalambos Tsangarides—[Washington, D.C.]: International Monetary Fund, 2008.

    p. cm.

    Includes bibliographical references.

    ISBN 9781589066755

    1. French franc area. 2. Monetary unions—Africa, French-speaking. 3. Africa, French-speaking—Economic policy. I. Gulde, Anne-Marie. II. Tsangarides, Charalambos G. III. International Monetary Fund.

    HG3897.4.C434 2008

    Price: $37.50

    Please send orders to:

    International Monetary Fund, Publication Services

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    Contents

    The following conventions are used in this publication:

    • In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

    • An en dash (–) between years or months (for example, 2005-06 or January-June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).

    • “Billion” means a thousand million; “trillion” means a thousand billion.

    • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

    Foreword

    Over the past five years we have seen not only renewed interest in Africa but also much good news from the continent: improved domestic policies in conjunction with higher commodity prices have produced both the highest average growth rates in decades and some improvements in key social indicators. There may still be deep-seated problems in most countries but there is also renewed optimism about a better future for Africa.

    Yet Africa is a diverse continent, and regional averages can only tell part of the story. Countries differ in language, legal traditions, the definition of property rights, educational systems, and often in economic and structural policies. Understanding how such differences affect economic performance is a challenge for macro- and development economists alike.

    The exchange rate regime is a highly visible difference between African countries. The countries in sub-Saharan Africa implement a wide variety of exchange rate systems, ranging from free floats to strictly fixed quasi-currency boards. However, 14 mostly francophone countries within the long-standing, rules-based CFA franc zone system share a fixed exchange rate regime, and their economic policy decisions are taken in the context of the regional monetary arrangements.

    The CFA franc arrangement is unique. There is nothing like it anywhere else in the world. It is an umbrella over two regional currencies, each pegged at a common exchange rate to the euro and guaranteed by an outside country (France). The CFA franc system does offer its members a range of advantages and opportunities, including a credible monetary anchor and the potential for wider financial and goods markets than those available to nonmember countries. Yet because the exchange rate is the unalterable linchpin of economic policies, CFA franc zone members also face unique economic policy challenges, especially when the economic environment is characterized by increasing financial volatility, structural changes, and rising capital flows.

    This book has several purposes. First, the IMF is engaged in regular policy dialogue with both individual CFA franc countries and the authorities for the two monetary and economic unions. The research collected here is intended to inform this dialogue and support the design of policies appropriate to the CFA franc regime.

    A second and equally important purpose of the book is to place the policy challenges facing the CFA franc zone before a broader audience of academics and “development practitioners,” and to stimulate a wider debate than is currently the case.

    Finally, given considerable interest in the costs and benefits of monetary unions—both in Africa and elsewhere—the book has an additional purpose. That is to inform policymakers in countries thinking about joining an existing or prospective union about not only the costs and benefits but also the policy consequences of a common currency.

    In reading the contributions in this volume I am heartened to realize that most offer cautious optimism about the CFA franc zone—though subject to a significant forward-looking agenda. I agree with policymakers in the region who emphasize that recently much has been done to expand the links between member country economies and promote more flexibility in the system, but I—like the authors of this book—see at least an equal amount still to be done. Some of the issues—such as removing obstacles within the zones—are becoming more urgent with increasing globalization and rapid economic change in some CFA franc countries. The authors therefore rightly remind policymakers that the stability benefits that arise from the CFA franc zone system can only be preserved if reforms are advanced.

    I would hope that institutional reforms already initiated in countries throughout the CFA franc zone are harbingers of more and deeper reform efforts. We at the IMF, and undoubtedly also those in the academic community, are ready to accompany our member countries as they move forward.

    Benedicte Vibe Christensen

    Acting Director

    African Department

    International Monetary Fund

    Acknowledgments

    This book collects and expands on research on the CFA franc zone undertaken in 2004-07 in connection with the IMF’s regional surveillance dialogue with WAEMU and CEMAC. We are grateful, first, to the regional institutions and their senior management—including the two central banks (BEAC and BCEAO), the economic commissions of WAEMU and CEMAC, and the two regional supervisory agencies (COBAC)—for many open and fruitful discussions during this period. Some of the papers were presented in regional seminars and benefited from detailed and specific comments from the institutions. Special thanks are due to Benoit Ketchekmen, director of economic analysis at the CEMAC commission, and Frederic A. Korsaga, former WAEMU commissioner for economic and monetary policy, for their keen support and interest in research on real integration in the two areas.

    The authors and editors also owe thanks to many colleagues and former colleagues at the IMF, the World Bank, the French Treasury, and the Banque de France who read and commented on specific papers. We are particularly grateful to Abdoulaye Bio-Tchané, former Director, and Benedicte Christensen, Acting Director, of the IMF African Department, who encouraged this project and helped sharpen the focus of our inquiry. We are also grateful to Michael Hadjimichael of the IMF Policy Development and Review Department, who carefully read most papers and provided many valuable suggestions, and to Christian Brachet, former Deputy Director of the African Department, who generously shared his experience and institutional knowledge of the region.

    A number of colleagues, with great enthusiasm, helped in the technical and editorial tasks associated with this project. Particular thanks are due to Gustavo Ramirez, who is also a coauthor of two studies, for excellent research assistance on most of the papers; Emma Morgan, who coordinated the preparation of the manuscripts; and Anne Grant, Jim McEuen, and Esha Ray, who edited the book and coordinated production.

    Finally, we are grateful to our families and friends, who tolerated many hours of overtime and mental preoccupation with this project.

    Abbreviations

    ACP

    Africa, Caribbean, and Pacific

    AGOA

    African Growth and Opportunity Act

    ASYCUDA

    Automated System for Customs Data

    BCEAC

    Central Bank of Equatorial African States and Cameroon (Banque Centrale des Etats de l’Afrique Equatoriale et du Cameroun)

    BCEAO

    Banque Centrale des Etats de l’Afrique de l’Ouest (Central Bank of West African States)

    BEAC

    Banque des États de l’Afrique Centrale (Bank of Central African States)

    BOAD

    West African Development Bank (Banque Ouest Africaine de Développement)

    BRVM

    Bourse Régionale des Valeurs Mobiliéres

    CEMAC

    Central African Economic and Monetary Community (Communauté Économique et Monétaire de l’Afrique Centrale)

    CET

    Common external tariff

    CIMA

    Conférence Interafricaine du Marché des Assurances

    CIPRES

    Conférence Interafricaine de la Prévoyance Sociale

    CMA

    Common Monetary Area

    COBAC

    Commission Bancaire de l’Afrique Centrale

    COMESA

    Common Market for Eastern and Southern Africa

    CPI

    Consumer price index

    CRCA

    Commission Régionale de Contrôle des Assurances

    CREPMF

    Conseil Régional de l’Epargne Publique et de Marchés Financiers

    EBA

    Everything But Arms

    ECCAS

    Economic Community of Central African States

    ECCU

    Eastern Caribbean Currency Union

    ECOFIN

    Economic and Financial Affairs (Council of the European Union)

    ECOWAS

    Economic Community of West African States

    EMLFR

    European marginal lending facility rate

    EMU

    European Economic and Monetary Union

    EPA

    Economic Partnership Agreement

    EREER

    Equilibrium real effective exchange rate

    EU

    European Union

    EURIBOR

    Euro interbank offered rate

    FDI

    Foreign direct investment

    FEER

    Fundamental equilibrium exchange rate

    FFG

    Funds for Future Generations

    GATT

    General Agreement on Tariffs and Trade

    GCR

    Global Competitiveness Report

    GDP

    Gross domestic product

    GSP

    Generalized System of Preferences

    HDI

    Human Development Index

    HIPC

    Heavily Indebted Poor Countries

    IFS

    International Financial Statistics

    INS

    Information Notice System

    LMI

    Lower- and middle-income

    MDRI

    Multilateral Debt Relief Initiative

    MFI

    Microfinance institution

    MFN

    Most favored nation

    NCC

    National Competitiveness Council

    NDA

    Net domestic asset

    NEER

    Nominal effective exchange rate

    NFA

    Net foreign asset

    NPL

    Nonperforming loan

    OCA

    Optimum currency area

    OECD

    Organization for Economic Cooperation and Development

    OHADA

    Organization for the Harmonization of Business Law in Africa (Organisation pour l’Harmonisation du Droit des Affaires en Afrique)

    OSF

    Oil Stabilization Fund

    PPP

    Purchasing power parity

    REER

    Real effective exchange rate

    REP

    Regional Economic Plan

    RIA

    Regional integration agreement

    ROA

    Return on assets

    ROE

    Return on equity

    RTGS

    Real-time gross settlement

    SADC

    Southern African Development Community

    SICAV

    Société d’Investissement à Capital Variable

    SME

    Small and medium-sized enterprise

    SSA

    Sub-Saharan Africa

    SSATP

    Sub-Saharan Africa Transport Policy

    SYSCOA

    West African Accounting System (Système Comptable Ouest Africain)

    SYSCOHADA

    OHADA Accounting System (Système Comptable de l’OHADA)

    TDP

    Taxe Dégressive de Protection

    TFP

    Total factor productivity

    TI

    Transparency International

    UDEAC

    Customs and Economic Union of Central Africa (Union Douanière des Etats de l’Afrique Centrale)

    ULC

    Unit labor cost

    UN COMTRADE

    United Nations Commodity Trade Statistics database

    VAT

    Value-added tax

    WAEMU

    West African Economic and Monetary Union

    WAMU

    West African Monetary Union

    WAMZ

    West African Monetary Zone

    WCY

    World Competitiveness Yearbook

    WEO

    World Economic Outlook

    WGI

    World Governance Indicators

    WTO

    World Trade Organization

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