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Beyond the CFA Franc: an empirical analysis of the choice of an exchange rate regime in the UEMOA

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  • Assande Des Adom

Abstract

The CFA franc, originally created in 1945, currently serves as the common monetary unit for the eight member countries of the West African Economic and Monetary Union (UEMOA). In recent years, one has witnessed repeated calls from economists and politicians alike for the introduction of a new currency, which will be more reflective of fundamentals in UEMOA member countries' economies. This paper attempts to provide a road map for decision-makers in their choice of an exchange rate regime, when they decide to switch to a new currency. The model utilises an ordered logistic model to investigate which type of exchange rate regime - a currency board, a fixed but adjustable regime (FBAR), a managed float or a free float - will be appropriate for the Union in light of the economic and institutional fundamentals of its members. Our findings suggest that an FBAR will be the most suitable exchange rate regime, for it will have greater stimulus effects on investment and economic growth. The adoption of an FBAR will help UEMOA member states reach a two-fold objective: (i) to achieve sustained economic growth, (ii) while reinforcing the credibility and authority of their central bank, the BCEAO.

Suggested Citation

  • Assande Des Adom, 2012. "Beyond the CFA Franc: an empirical analysis of the choice of an exchange rate regime in the UEMOA," Economic Issues Journal Articles, Economic Issues, vol. 17(2), pages 71-93, September.
  • Handle: RePEc:eis:articl:212adom
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    References listed on IDEAS

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    1. Bleaney Michael & Francisco Manuela, 2007. "Exchange Rate Regimes, Inflation and Growth in Developing Countries -- An Assessment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-20, July.
    2. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
    3. Markiewicz, Agnieszka, 2006. "Choice of exchange rate regime in transition economies: An empirical analysis," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 484-498, September.
    4. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17.
    5. Simeon Coleman, 2008. "Estimating Equilibrium Real Exchange Rates in the Franc Zone," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 17(4), pages 600-634, August.
    6. Se-Eun Jeong & Jacques Mazier, 2003. "Exchange Rate Regimes and Equilibrium Exchange Rates in East Asia," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 1161-1182.
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