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Oral Williams is an economist in the Western Hemisphere Department of the IMF, Tracy Polius an economist at the Eastern Caribbean Central Bank, and Selvon Hazel a research assistant at the Policy Research and Development Institute in Trinidad and Tobago. We thank Pierre-Richard Agénor, Joshua Aizenman, Ekué Kpodar, Deslisle Worrel, Frits van Beek, Gene Leon, colleagues in Caribbean I, and II Divisions in the Western Hemisphere Department and the African Department for invaluable comments and suggestions. All remaining errors and omissions accrue entirely to the authors.
CFA stands for Communauté Financière Africaine in the Central African Economic and Monetary Community and Coopération Financière Africaine in the West African Economic and Monetary Union.
The criteria include: (1) the extent of trade among members; (2) similarity in economic structures and commonness of shocks; (3) flexible factor mobility; and (4) existence of fiscal transfers.
The ECCU is comprised of the following independent countries; Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent, and two British dependent territories, Anguilla and Montserrat. The WAEMU consists of Benin, Burkina Faso, Côte d’Ivoire, Senegal, Togo, Niger, Guinea Bissau, and Mali, and these countries are governed by a common central bank, the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO). Cameroon, Congo, Gabon, Central African Republic, Equatorial Guinea and Chad form the CAEMC and are governed by the Banque des Etats de l’Afrique Centrale (BEAC).
For a more detailed account of the institutional framework of the ECCU/ECCB see “The Eastern Caribbean Currency Union: Institutions, Performance and Policy Issues” Occasional Paper 195/2000.
The ECCB is the monetary authority of the Eastern Caribbean Currency Union.
RMi can only be calculated as currency is issued to banks in country i and generally will not coincide with currency held there. Notes move freely among the islands leading to discrepancies between currency issued and currency held.
Sight liabilities include notes and coins, sight deposits of banks, financial institutions and the treasury, and foreign currency liabilities.
The optimization approach to reserve pooling, though very attractive, was not used in this paper largely because of the inherent difficulties in defining a cost function for reserves.
See appendix for graphical illustration.
These oil prices are based on the average of U.K. Brent, Dubai and West Texas Intermediate. West Texas Intermediate prices are typically US$3–4 higher than the two other prices.
Currency to GDP is highly correlated with the degree of economic activity based on the transactions demand for money.
Average currency to GDP for Barbados was 5.5 percent, Belize 5.3 percent and Bahamas 2.6 percent. The result for Bahamas represented the high co-circulation of U.S. and Bahamian dollars and the higher use of credit and debit cards for transactions purposes. ECCU countries average currency to GDP ranged from 5.1 to 6.4 percent.
Benin, Mali, and Togo had terms of trade shocks with a half life less than two years, Burkina Faso, Central African Republic, and Niger between two–four years, Senegal between four–six years and Cameroon, Côte d’lvoire, and Gabon infinity.
See: David Stasavage. The CFA Franc Zone and Fiscal Discipline, Journal of African Economies, Vol 6 (l):132–67, 1997.
Gabon and Congo were the only countries in the CFA franc zone that did not benefit from concessional rescheduling.