EXCHANGE RATE ARRANGEMENTS IN THE CFA FRANC ZONE: ALTERNATIVES TO FIXED PARITY

David Leland Dibley

No 11047, Graduate Research Master's Degree Plan B Papers from Michigan State University, Department of Agricultural, Food, and Resource Economics

Abstract: The CFA franc, currency for 13 West and Central African countries (the CFA zone), has been tied to the French franc via a fixed exchange rate arrangement since 1948. Proponents of the fixed parity rate argue that it provides price stability for the African countries, while opponents contend that it contributes to poor economic performance by sending incorrect signals to the domestic economy. Further, France's ability to maintain the current arrangement is uncertain in light of the approaching economic integration in Europe. After reviewing the history of the CFA zone, this paper assesses the appropriateness of the fixed rate arrangement for the zone, with emphasis placed on recent events, especially the1994 devaluation of the CFA franc. The paper then reviews alternative exchange rate arrangements for the CFA franc, and discusses their applicability in the setting of the CFA zone. The paper finds that a more flexible exchange rate arrangement, for example a peg to a common European currency, is appealing because it better reflects trade flows and may reduce exchange rate variability with non-CFA countries in West and Central Africa, thus aiding regional development.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 55
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:ags:midagr:11047

DOI: 10.22004/ag.econ.11047

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