The 1994 devaluation of the CFA franc was a result of a prolonged deterioration of the terms of trade of the countries of the CFA franc zone, a steep rise in the labor costs of those countries, and a nominal appreciation of the French franc against the U.S. dollar, all of which resulted in an overvalued exchange rate.1 The devaluation was instrumental in making CEMAC and WAEMU countries more competitive, and, reinforced by prudent macroeconomic policies and structural reforms, helped GDP return to positive growth rates.2 This experience has shown that maintaining the fixed exchange rate regime in the CFA franc region requires careful attention to competitiveness and suggests that an assessment of whether the competitiveness gains since the devaluation have been preserved or eroded is warranted.

Common Currency, Uncommon Challenges