Impacts of exchange rate fluctuations on trade between WAEMU countries and China

This paper examines the implications of exchange rate perturbations in the West African Economic and Monetary Union (WAEMU) area, presenting a distinctive perspective on its expanding trade exchange with China, despite the hindrance posed by its monetary anchorage. We use the panel nonlinear autoregressive distributed lag approach to demonstrate the susceptibility of the WAEMU to the fluctuations of exchange rates, as the variations in the value of the yuan have significant asymmetric and symmetric impacts on its trade dealings with China. Thus, the established fixed exchange rate regime between the CFA franc and the euro appears to be a veil, and the WAEMU should re-evaluate this fixity by examining two crucial elements, namely the fixity principle and the reference anchor. It should weigh the benefits of a fixed exchange rate against the requirements of price competitiveness in both the import and export markets to achieve a more suitable exchange rate arrangement, e.g. the implementation of a currency basket framework.