Préserver la zone CFA : la coordination macro-économique après la dévaluation

Abstract

The recent 50 percent devaluation of the CFA Franc reinforces the importance of macro-economic coordination in the two monetary unions. The existing rule-based arrangements, such as the limit of a country's central-bank borowing being 20 percent of fiscal receipts, have not prevented some fiscal laxity, with the costs of one member's excesses potentially spilling over to the union as a whole. If the benefits of membership in the cfa zone (monetary discipline, low inflation) are to be preserved, the existing arrangements will need to be modified. The paper proposes that the 20 percent rule be strengthened to include a limit on each country's fiscal deficit and debt ; that sanctions on errant states be imposed through reduced access to borrowing ; and that the central banks finance quasi-fiscal deficits through the countries' budgets.