The CFA Zone: A Positive Example of Monetary Coordination?

In the Asian crisis of 1998–9, many East Asian currencies came under pressure and had to devalue. By what was later called the effect of contagion, even countries with weak trade links to Asia were affected. The aftermath of the Asian crisis saw the awakening of new interest in monetary coordination. Remarkably, the Franc CFA Zone in Africa, which may well be the oldest arrangement of this type, was left untouched by the East Asian eruptions. The following article looks into the question of whether this makes the Franc CFA Zone a positive model. It begins with a short statement of the need for monetary cooperation, briefly outlines the origin and function of the Franc CFA system, then recalls selected features and failures of the arrangement and briefly discusses their impacts. The next section (pp. 171–2) outlines the current discussion on this monetary arrangement and its future, with attention being drawn (pp. 172–4) to the role of the Zone for Europe, and vice versa. Finally, there is a review of the lessons to be learned from a study of the Franc CFA Zone for monetary coordination arrangements in general. The focus is on economic arguments, while the interesting field of political economy is only touched on briefly; Kohnert, in his commentary on Chapters 8 and 9, addresses the political aspects more directly.