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Collective Pegging to a Single Currency: The West African Monetary Union

In: Economic Adjustment and Exchange Rates in Developing Countries


  • Jorge Braga de Macedo


The paper presents a model of a monetary union designed to illuminate monetary and exchange rate policy in the West African Monetary Union (UMOA). Emphasis is placed on the interaction of the members of UMOA with each other, through the common central bank, and on their interaction with France and the rest of the world. As a consequence, the structure of the national economies depends essentially on their size.The relative size of the partners is reflected in the source and type of disturbances as well as in the trade pattern: large countries are not affected by disturbances originating in small countries. Small countries are affected by all external disturbances. The collective nature of the pegging becomes important because the small countries are taken to be of equal size.Using a four-country, two-tier macroeconomic model, it is shown that the pseudo-exchange rate union with the large partner has no effect on the real exchange rates of the small countries but affect their price levels, whereas a full monetary union requires in principle a transfer whose allocation between the two small countries by their common central bank may have real effects. This transfer is precisely provided by the large country, as guarantor of the fixed exchange rate arrangement. When both small countries are in surplus, there is a reverse transfer to the large country, with no monetary consequences. In line with the findings of the model, evidence is provided on monetary allocations in UMOA and on the real exchange rates of its major members, as compared to ot her African countries.
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Suggested Citation

  • Jorge Braga de Macedo, 1986. "Collective Pegging to a Single Currency: The West African Monetary Union," NBER Chapters,in: Economic Adjustment and Exchange Rates in Developing Countries, pages 333-368 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:7678

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    References listed on IDEAS

    1. Richard C. Marston, "undated". "Exchange-Rate Unions and the Volatility of the Dollar," Rodney L. White Center for Financial Research Working Papers 11-80, Wharton School Rodney L. White Center for Financial Research.
    2. Thomas Willett & Edward Tower, 1970. "Currency areas and exchange-rate flexibility," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 105(1), pages 48-65, September.
    3. Aoki, Masanao, 1983. "A fundamental inequality to compare dynamic effects of real and asset sector disturbances in a three-country model of the world under alternative exchange rate regimes," Economics Letters, Elsevier, vol. 11(3), pages 263-267.
    4. Marc Raffinot, 1982. "Gestion étatique de la monnaie, parités fixes et dépendance : le cas de la zone franc," Revue Tiers Monde, Programme National Persée, vol. 23(91), pages 549-567.
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    Cited by:

    1. Jorge Braga de Macedo, 1985. "Small Countries in Monetary Unions: A Two-Tier Model," NBER Working Papers 1634, National Bureau of Economic Research, Inc.
    2. Jorge Braga de Macedo, 2012. "Cape Verde’s foreign policy: an economic perspective," FEUNL Working Paper Series wp572, Universidade Nova de Lisboa, Faculdade de Economia.
    3. Uche, Chibuike U., 2001. "The politics of monetary sector cooperation among the Economic Community of West African States members," Policy Research Working Paper Series 2647, The World Bank.

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