Franc Zone: Stronger than Ever?

Romain Veyrune ()

No 200224, Working Papers from CERDI

Abstract: The Franc Zone rests on an original mechanism, the compte d'opération (CO). This account gives the CFA a credible external convertibility backed by the French Treasury. We argue that the monetary policy imposed by the CO aims at balancing external accounts, in a manner inspired by the monetary approach of the balance of payments. This feature and the fixed nominal exchange rate identify the zone with a convertibility regime. Using a co-integration model adapted for panel data, we test the sensitivity of the money supply to external accounts in order to infer the CO efficiency for implementing external monetary adjustment. An incidental question also appears: what are the consequences of the 1994 devaluation for the nature of the regime? We adapt our test to obtain the difference between the ante- and the post-devaluation periods. We conclude that the zone behaves as a convertibility regime and that the devaluation reinforces, instead of weakens, its nature.

Keywords: Franc Zone; Compte d'opération; 1994 devaluation; Panel unit roots test; Panel co-integration model. (search for similar items in EconPapers)
Pages: 17
Date: 2002
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