Do pegged currencies support growth? Insights from mali’s experience with the CFA Franc

Boubacar Amadou Cisse (), Tahirou Tangara, Boubacar Mounkoro, Abdoulaye Arama, Ahmed Baba Singare and Moussa Diallo
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Boubacar Amadou Cisse: University Mohammed VI Polytechnic
Tahirou Tangara: Bamako University of Social and Management Sciences
Boubacar Mounkoro: Bamako University of Social and Management Sciences
Abdoulaye Arama: Bamako University of Social and Management Sciences
Ahmed Baba Singare: Bamako University of Social and Management Sciences
Moussa Diallo: Bamako University of Social and Management Sciences

SN Business & Economics, 2025, vol. 5, issue 12, 1-20

Abstract: Abstract Can a fixed exchange rate regime deliver macroeconomic stability without compromising policy flexibility and growth? This paper investigates this question using Mali’s experience with the CFA franc (XOF), a euro-pegged currency in a US Dollar-dominated trade environment, with annual data from 1967 to 2023, within an ARDL-ECM framework. The analysis reveals a structural paradox: while the peg stabilizes inflation, it amplifies the country’s exposure to external shocks and limits monetary policy autonomy. USD/XOF volatility has a significant short-run dampening effect on GDP, with partial long-run adjustment. In a paradox, growth is positively correlated with inflation, indicative of a liquidity-driven stimulus effect in the case of tight monetary conditions. These dynamics stress the limits of nominal discipline in structurally dependent economies, as those using the CFA Franc. Drawing on recent empirical studies (2024–2025), the paper calls for a recalibration of Mali’s macroeconomic strategy: one that prioritizes fiscal agility and policy freedom, export diversification, and climate-sensitive investments to mitigate volatility and enhance resilience. The results offer timely insights for WAEMU policymakers and development partners navigating the trade-offs of fixed exchange rate regimes in a multipolar financial system.

Keywords: Exchange rate; CFA franc; Economic growth; ARDL; Currency regime (search for similar items in EconPapers)
JEL-codes: E31 F31 F33 F41 O55 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s43546-025-00975-9

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