Common Currency and Intra-Regional Trade in the Central African Monetary Community (CEMAC)

Abstract

The impact of a common currency on trade is an important topic in literature on international trade. The issue remains controversial, especially at a time when the true benefits of increasing integration with regional blocs are being debated by policymakers. Since World War II, 123 countries have been involved in a currency union at some point, and by 2015, 83 countries continued to be involved in one. This shows that currency unions are an important institutional arrangement to facilitate international trade and reduce trade costs (Chen and Novy, 2018). The effects of a common currency on intra-regional trade depend on the objectives of member states and whether the union is among developed economies, developing economies, or a mixture of both. The impact of the Coopération financière en Afrique centrale (Financial Cooperation in Central Africa, CFA) franc on intra-regional trade has been one of great concern because of the obstacles encountered by member states regarding their commitment to implementing regional objectives. CFA is a French acronym.The CFA franc zone dates back to 1945, as an outgrowth of the economic and financial arrangements under which France administered its colonies. The CFA refers to two currencies: the Central African CFA franc and the West African CFA franc. These are two separate currencies used by the Central African Economic and Monetary Community, also known as Communauté Économique des États d'Afrique Centrale (CEMAC), and the West African Economic and Monetary Union, also commonly known as Union Économique et Monétaire Ouest Africaine. The six members in Central Africa are Cameroon, the Central African Republic, Chad, the Republic of the Congo, Equatorial Guinea, and Gabon, which all use the franc de la Cooperation financière en Afrique Centrale and have their own central bank, the Banque des États de l'Afrique Centrale in Yaoundé, Cameroon (Bénassy-Quéré and Coupet, 2005).The creation of a common currency in CEMAC was intended to facilitate commercial exchange and reduce the transaction costs of member states, enabling the region to benefit from lower prices and increased intra-regional trade. Although a currency union can lead to lower transaction costs, the effect on all bilateral trading relationships will not be the same for all member states. Countries with small import shares are more likely to be sensitive to changes in trade costs. Currency unions are not randomly assigned and are usually the outcome of a political process. However, instruments for currency-union membership are difficult to find and several attempts have been made, according to the literature, but have proved disappointing (Chen and Novy, 2018).