Competitiveness and growth within the CFA franc zone: Does the switch to the Euro matter?

Abstract

In this paper, we seek to analyze the impacts exerted by the substitution of the French franc for the euro on real and nominal effective exchange rates, competitiveness and growth within the CFA zone. Our findings show that, since the advent of the euro, the evolution of the real exchange rates and the competitiveness (measured by currency misalignments) have become increasingly dependent on nominal exchange rate movements and therefore on the evolution of the anchor currency. While the appreciation of the euro in the last decade did not translate into strong and generalized currency overvaluations-expect in Central African Republic, Côte d'Ivoire, Congo and Togo-it had however strongly reduced the extend of real undervaluations induced by the 1994 devaluation of the CFA franc. This has resulted in an increasingly negative effect exerted by real and nominal appreciations on growth rates of these countries since the switch to the euro.

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

“…When the real appreciation of a currency is not accompanied by an improved economic situation, it is likely to result in a loss of competitiveness (Coulibaly, 2014). Despite the advantage of a pegged exchange rate in mitigating the volatility of the exchange rate, it can damage the prospect of any growth in cases of overvaluation (Fosu, 2012).…”

France à fric: the CFA zone in Africa and neocolonialism

“…Firstly, the economies of the CFA zone experience major problems regarding the price competitiveness of their exports, due to the fixed exchange rate with the euro which, as has been mentioned, makes the CFA an overvalued currency. 96 Senegal, for example, recorded an overvaluation of the real exchange rate estimated at between 10% and 35% in 2013-2014. 97 The strength of the CFA then acts as an effective tax on exports and a subsidy on imports.…”

Coûts/gains commerciaux de l'intégration monétaire dans la Zone Franc africaine: Une analyse à partir de 5 scenarii

“…Cette controverse, loin d'être nouvelle, a suscité plusieurs études liées aux événements majeurs survenus dans cet espace de coopération monétaire, les plus cités étant la dévaluation de 1994, l'adoption de l'Euro par la France en 1999 et tout récemment la création de l'ECO en 2019. Les études menées ont abordé la question de la viabilité de cette zone sous le prisme de son optimalité monétaire (Couharde et al, 2013; Zhao & Kim, 2009) et de la compétitivité des économies (Coulibaly, 2014), notamment.…”