Mitchell Milaitis, Kiefer Baumbach CFA Franc Mitchell Milaitis, Kiefer Baumbach

Overview CFA Franc zone is an economic and monetary area composed of two separate and independent unions: West African Economic and Monetary Union (Green) Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. Central African Economic and Monetary Community (Red) Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea and Gabon. Signed monetary cooperation agreements with France, with two main implications They guaranteed the convertibility of the CFA franc to the Euro as well as pegged the CFA franc to the Euro In return for the CFA guarantee, members of the zone had to deposit at least 50% of their external reserves into special accounts held by the French treasury (as of 2010). Currently, the two versions of the currency are not interchangeable.

Issues Impacting Currency Value Political Instability Dictatorships struggling to cling to power Democratic Republic of the Congo Open Conflict Boko Haram Islamic State in the Greater Sahara in Niger 4 US servicemen dead Armed Militias Criminal Networks Security Forces of African Nations UN ~ 4.2 Million refugees

The Recurring Debate The debate has been revived in recent years, after the population's fears were heightened by a rumor in early 2010 that there would be a devaluation of the CFA franc In 2015 Chadian President Idriss Deby Itno argued that the current principles create an obstacle to the development of the member countries of the CFA zone It was argued that anchoring the CFA franc to the euro reduces the competitiveness of african economies and favors imports from countries with weak currencies

Euro → CFA Franc

Euro → USD

CFA Franc → USD

Repercussions of Recent Events CFA Franc USD http://www.xe.com/currencycharts/?from=XOF&to=USD&view=1M

Costs Exports from CFA zone to the Euro area, fell from 50% to 25% in the last 20 years in favor of exports to countries such as china, nigeria, india and thailand. This means the benefits in terms of exchange rate stability with the euro area are ineffective because there is less trade between the areas Export earnings are generally reported in USD, which the CFA zone must convert to euros An appreciation of the euro against the dollar reduces the value in terms of exports earnings in the CFA member countries CFA Central banks must follow the policies adopted by the European Central bank in order to maintain the parity level between the two currencies Trade among member states has been hampered by structural issues, including lack of integration between the two versions of the currency.

Benefits CFA zone members benefit from lower inflation and better fiscal discipline compared to similar developing countries Studies have shown that the growth rate in the CFA zone is not significantly different from that of other countries Helped the CFA zone countries to survive recent falls in the price of oil and commodities without currency collapse, inflation spikes and fiscal distress. Zimbabwe Annual inflation rate of 242.72%

Questions Do you think the agreement should be; scrapped, revamped, or left be? Do you think the EU has a responsibility to stabilize/support the region since it essentially controls those nations economies?

Sources http://www.worldpolicy.org/blog/2017/02/28/costs-and-benefits-cfa-franc https://www.americanexpress.com/us/content/foreign-exchange/articles/cfa-franc-and-its-foreign-exchange-rate-impact/ https://en.wikipedia.org/wiki/CFA_franc http://foreignpolicy.com/2017/01/05/10-conflicts-to-watch-in-2017/