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Monetary cooperation in the CFA zone

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  • Honohan, Patrick

Abstract

The 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 Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 389.

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Date of creation: 31 Mar 1990
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Handle: RePEc:wbk:wbrwps:389

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Related research

Keywords: Financial Crisis Management&Restructuring; Banks&Banking Reform; Economic Theory&Research; Financial Intermediation; Economic Stabilization;

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Cited by:
  1. Masahiro Kawai & Shinji Takagi, 2005. "Towards regional monetary cooperation in East Asia: lessons from other parts of the world," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 10(2), pages 97-116.
  2. Elbadawi, Ibrahim & Majd, Nader, 1996. "Adjustment and economic performance under a fixed exchange rate: A comparative analysis of the CFA zone," World Development, Elsevier, Elsevier, vol. 24(5), pages 939-951, May.
  3. Chamley, Christophe & Honohan, Patrick, 1990. "Taxation of financial intermediation : measurement principles and application to five African countries," Policy Research Working Paper Series 421, The World Bank.
  4. Elbadawi, Ibrahim & Majd, Nader, 1992. "Fixed parity of the exchange rate and economic performance in the CFA zone : a comparative study," Policy Research Working Paper Series 830, The World Bank.
  5. Rohinton Medhora, 1992. "Seigniorage flows in the West African Monetary Union, 1976–89," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 128(3), pages 513-526, September.
  6. Rossum, M.T.A. & Tak, C.M., 1994. "The CFA franc zone : reason for participation," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0040, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  7. Chhibber, Ajay, 1991. "Africa's rising inflation : causes, consequences, and cures," Policy Research Working Paper Series 577, The World Bank.
  8. Savvides, Andreas, 1998. "Inflation and monetary policy in selected West and Central African countries," World Development, Elsevier, Elsevier, vol. 26(5), pages 809-827, May.
  9. Shortl, Anja & Stasavage, David, 2004. "Monetary Policy in the CFA Zone: Country-level Credit Policy," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  10. Kuikeu, Oscar, 2011. "Arguments contre la zone franc
    [Against the cfa franc zone]
    ," MPRA Paper 33710, University Library of Munich, Germany.
  11. Shortl, Anja & Stasavage, David, 2004. "Monetary Policy in the Franc Zone: Estimating Interest Rate Rulesfor the BCEAO," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  12. Devarajan, Shantayanan & de Melo, Jaime, 1990. "Membership in the CFA zone : Odyssean journey or Trojan horse?," Policy Research Working Paper Series 482, The World Bank.

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