The CFA Arrangements: More than Just An Aid Substitute?

Etienne Yehoue

No 2007/019, IMF Working Papers from International Monetary Fund

Abstract: The CFA franc zone has had one of the longest experiences with a fixed exchange rate for a convertible currency and regional integration of any group of developing countries. France, the anchor country, provides aid to support the zone. This paper asks whether the arrangements are more than just an aid substitute. The paper addresses this issue by evaluating the overall performance of the zone over the period 1960-2004. The analysis reveals that when the zone is hit by a negative shock, France increases its aid, thereby acting as a shock absorber. However, it also finds that the zone displays strong performance in two areas-price stability and fiscal policy. Thus the paper concludes that the arrangements are not an aid substitute; they have real macroeconomic value for the zone and complement aid.

Keywords: WP; single currency; France; country; CFA franc; Currency Unions; International Risk Sharing; Aid; Trade; inflation rate variability; anchor country; absorption role; zone countries' inflation rate variability; zone anchor country; CFA member country; CEMAC member country; anchor currency inflation rate; zone country; France's export; inflation country; CFA zone member country; Inflation; Monetary unions; Government asset and liability management; Exchange rate arrangements; Exports; Central Africa; West Africa (search for similar items in EconPapers)
Pages: 33
Date: 2007-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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