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date: 19 February 2020

Abstract and Keywords

This chapter reviews the history of the CFA Franc Zone, and discusses whether membership in the zone has supported economic growth and reduced the need for economic adjustment. It concludes that the zone is not an optimal currency area and that the costs of belonging to it outweigh its benefits. It then assesses the alternatives to the fixed parity rate between the CFA franc and the euro. In the zone, proponents of the fixed rate point to its ability to provide stability by linking inflation levels of African countries to that in France and Europe; while opponents of fixed parity argue that it sends incorrect signals to the domestic economies. There are a number of exchange rate arrangements that differ from the fixed parity rate by degrees of flexibility, and the appropriateness of each depends upon the economic setting in which it is used. This chapter evaluates these alternatives.

Keywords: monetary union, optimal currency area, regional integration, Africa, CFA Franc, BCEAO, BEAC, WAEMU, CAEMC, France

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