© 2008 International Monetary Fund

© 2008 International Monetary Fund

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Cover design: Vlad Herrera

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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

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  • Foreword

  • Acknowledgments

  • Abbreviations

  • 1. Overview

    • Anne-Marie Gulde

  • Part I. Sustainability of Macroeconomic Policies

  • 2. Monetary Policy in a Currency Union? The Case of CEMAC

    • Corinne Deléchat, Gustavo Ramirez, and Romain Veyrune

  • 3. Long-Run Determinants of Inflation in WAEMU

    • Abdoulaye Diop, Gilles Dufrénot, and Gilles Sanon

  • 4. Fiscal Reaction Functions in the CFA Franc Zone

    • Oumuyiwa S. Adedeji and Oral Williams

  • 5. Reserve Adequacy in the CFA Franc Zone

    • Corinne Deléchat and Jan Kees Martijn

  • Part II. Capacity to Adjust to Changes in External Conditions

  • 6. Economic Fundamentals and the CFA Franc Zone Real Exchange Rates

    • Yasser Abdih and Charalambos Tsangarides

  • 7. Competitiveness in the CFA Franc Zone

    • Gustavo Ramirez and Charambos Tsangarides

  • 8. What Is Fuzzy About Clustering in West Africa?

    • Mahvash Saeed Qureshi and Charalambos Tsangarides

  • Part III. Integration and Growth

  • 9. Financial Sector Integration in WAEMU

    • Amadou Sy

  • 10. Banking Sector Integration and Competition in CEMAC

    • Samer Saab and Jérôme Vacher

  • 11. Growth and Convergence in the CFA Franc Zone

    • Catherine Pattillo, Charalambos Tsangarides, and Pierre van den Boogaerde

  • 12. Trade in CEMAC: Developments and Reform Opportunities

    • Jan Kees Martijn and Charalambos Tsangarides

  • 13. Trade in WAEMU: Developments and Reform Opportunities

    • Manuela Goretti and Hans Weisfeld

  • About the Authors

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.


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


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.



Africa, Caribbean, and Pacific


African Growth and Opportunity Act


Automated System for Customs Data


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


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


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


West African Development Bank (Banque Ouest Africaine de Développement)


Bourse Régionale des Valeurs Mobiliéres


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


Common external tariff


Conférence Interafricaine du Marché des Assurances


Conférence Interafricaine de la Prévoyance Sociale


Common Monetary Area


Commission Bancaire de l’Afrique Centrale


Common Market for Eastern and Southern Africa


Consumer price index


Commission Régionale de Contrôle des Assurances


Conseil Régional de l’Epargne Publique et de Marchés Financiers


Everything But Arms


Economic Community of Central African States


Eastern Caribbean Currency Union


Economic and Financial Affairs (Council of the European Union)


Economic Community of West African States


European marginal lending facility rate


European Economic and Monetary Union


Economic Partnership Agreement


Equilibrium real effective exchange rate


European Union


Euro interbank offered rate


Foreign direct investment


Fundamental equilibrium exchange rate


Funds for Future Generations


General Agreement on Tariffs and Trade


Global Competitiveness Report


Gross domestic product


Generalized System of Preferences


Human Development Index


Heavily Indebted Poor Countries


International Financial Statistics


Information Notice System


Lower- and middle-income


Multilateral Debt Relief Initiative


Microfinance institution


Most favored nation


National Competitiveness Council


Net domestic asset


Nominal effective exchange rate


Net foreign asset


Nonperforming loan


Optimum currency area


Organization for Economic Cooperation and Development


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


Oil Stabilization Fund


Purchasing power parity


Real effective exchange rate


Regional Economic Plan


Regional integration agreement


Return on assets


Return on equity


Real-time gross settlement


Southern African Development Community


Société d’Investissement à Capital Variable


Small and medium-sized enterprise


Sub-Saharan Africa


Sub-Saharan Africa Transport Policy


West African Accounting System (Système Comptable Ouest Africain)


OHADA Accounting System (Système Comptable de l’OHADA)


Taxe Dégressive de Protection


Total factor productivity


Transparency International


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


Unit labor cost


United Nations Commodity Trade Statistics database


Value-added tax


West African Economic and Monetary Union


West African Monetary Union


West African Monetary Zone


World Competitiveness Yearbook


World Economic Outlook


World Governance Indicators


World Trade Organization