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Title:The CFA franc zone: reason for participation
Authors:Rossum, Maarten T.A. vanISNI
Tak, Casper M. van derISNI
Series:Serie research memoranda
City of publisher:Amsterdam
Publisher:Vrije Universiteit, Faculteit der Economische Wetenschappen en Econometrie
Geographic term:French-speaking Africa
Subject:franc zone
Abstract:This paper deals with the question of why the member countries of the CFA franc zone participate in that currency area, thereby focusing on economic motives for membership. According to the literature on optimal currency areas, an area with a large intraregional trade volume and a flexible price and wage system is most suitable for the establishment of a currency area. However, intraregional trade in the CFA zone in West and Central Africa is low, while prices and wages are quite rigid. The authors hypothesize that membership of the CFA zone may positively influence country risk assessment. The analysis suggests that membership in the CFA franc zone could have exerted a positive influence on the possibility of attracting foreign capital in the past, but it is difficult to assess whether this is still the case after the 1994 devaluation of the CFA franc.