Monetary cooperation in the CFA zone
AbstractThe CFA or franc zone in Africa is the largest and most enduring of currency blocs. This paper is designed as a guide to understanding how the zone works as a mechanism for monetary cooperation. Unfortunately, the experience described in this paper is not encouraging. Despite fixed exchange rates and an elaborate set of rules for avoiding excessive credit expansion, the CFA zone has almost foundered in widespread bank insolvency. The paper is organized as follows : a) section 2 describes member countries of the zone, highlighting their diversity not only in economic structure but in the state of their financial system; b) section 3 shows that there is no effective regional money market and considers how this might be remedied; c) section 4 discusses how credit has been distributed between the member countries and highlights asymmetries which have arisen; d) section 5 explains how seignorage is divided in the unions and shows how the losses may fall disproportionately on non favored countries; and e) section 6 concludes by considering how the recent banking crisis has revealed deficiencies in the zone's arrangements.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 389.
Date of creation: 31 Mar 1990
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Financial Crisis Management&Restructuring; Banks&Banking Reform; Economic Theory&Research; Financial Intermediation; Economic Stabilization;
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