R. Medhora - Reserve Pooling in the West African Monetary Union

As part of the institutional arrangements of the West African Monetary Union (UMOA), the member countries enter into a partial pooling scheme, where normally 65% of each country’s official international reserves are maintained in an Operations Account run by their common central bank. The benefits of this arrangement to the members derive from the unconditional and increased access that each has to the ethers’ reserves, as well as the potentially lower variability of pooled reserves. By defining coverage as the ratio of reserve holdings to their variability, this paper shows that during the periods 1974-84 and 1985-90, all members hut one enjoyed higher coverage by belonging to the pool than if they had been autonomous. Countries with high levels and low variability of own reserves benefited less than those with the opposite profile. In a time of reserve shortage, these gains are not trivial, and even the countries that did not benefit may do so at other times - which is precisely the aim of such an arrangement. However, it is argued that these gains may only accrue in a monetary union such as the UMOA, where the other features of the monetary union prevent misuse of the pool.