Email: s. gguillaumont@ u-clermont1. fr
My warm thanks to Christian de Boissieu and Patrick Guillaumont for their attentive reading of this text and their judicious criticisms.
The WAEMU currently includes eight West African States: Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Togo and Senegal.
This study group met in Dakar between June 18 and October 31, 2003 and was chaired by Daniel Lebègue. It included representatives from each State making up the Union, the Commission of the WAEMU, the West African Development Bank, the Professional Association of Banks and Financial Establishments of the WAEMU, international experts and university professors. In a lecture at the CERDI, Charles Konan Banny, governor of the BCEAO, spelled out the issues and challenges of the reform (May 2004). The report remains confidential and the Heads of State have not yet decided how it should be followed up.
See articles 49 and 52 of the statutes of the BCEAO and article 10 of the Agreement of Cooperation Between the French Republic and the Member Republics of the WAMU.
This CFA franc is a currency distinct from the “franc of cooperation in central Africa” which has the same acronym.
In Napoleon’s words “I want the Bank to be sufficiently in the hands of the government, but not too much”, quoted by Alain Prate (1987), p. 56.
The governor is nominated by the Council of Ministers for a period of six years, renewable. Since its origin the BCEAO has only had three governors. Only the term of office of the second governor has been short (18 months), the latter becoming Prime Minister of the Côte d’Ivoire.
It went down to one ninth with the membership of the Union of Mali in 1984 and Guinea Bissau in 1997.
At the same time as the other CFA franc.
The WAEMU is thus the successor to three institutions of varied contours, the West African Customs Union (known under its French acronym, UDAO, 1962-1966), the Customs Union of West African States (known under its French acronym, UDEAO, 1966-1973), and the Economic Community of Western Africa (ECOWAS, 1974-1994). These agreements which envisaged a customs preference between the States of the community have gone through advances and setbacks and have been more or less well applied. On the other hand customs tariffs have effectively disappeared among WAEMU countries since January 2002, and a common external tariff has been introduced.
The community bodies include a Commission in which the governor of the BCEAO participates by right, with consultative voice, a parliament, a court of justice and a court of auditors.
The currencies of Germany, Austria, Belgium, Spain, Finland, France, Italy, Ireland, Luxemburg, Holland, Portugal ( and subsequently Greece and Sloveny ).
As the rate of conversion between the euro and the French franc (1 euro = 6.55957 francs) was irrevocably fixed by the Council of the European Union on December 31, 1998 and the CFA franc exchanged at the rate of 100 CFA francs to one French franc, the unchanged parity of the CFA francs has become 1 euro = 655.957 CFA francs.
Which rests on paragraph 3 of article 109, according to which “where agreements concerning monetary or foreign exchange regime matters need to be negotiated by the Community with one or more States or international organisations, the Council, acting by a qualified majority on the recommendation from the Commission and after consulting the ECB (European Central Bank), shall decide the arrangements for the negotiation and for the conclusion of such agreements.” Thus the Council of the European Union, by a decision of November 23, 1998, confirmed that France can “maintain agreements on exchange questions which currently link it to the WAEMU, the EMCCA and to the Comoros”.
According to the Agreement of Cooperation between the French Republic and the Member Republics of the WAMU, a modification of parity comes under the sovereignty of the African States, after consultation with France, “to the extent of what is possible” (article 5).
See the regulation of December 20, 1998 relating to the financial relations of the member States of the West African Economic and Monetary Union.
See the Balance Sheet that we have presented, showing monetary integration in the WAMU at the symposium for the 40th anniversary of the BCEAO (Guillaumont Jeanneney, 2002).
See IMF, Sub Regional Economic Outlook, 2004. The regional averages are weighted by the proportion of Gross Domestic Product (evaluated on the basis of purchasing power parity) of each country in the total of the region considered.
The evolution of the modalities of the BCEAO’s monetary policy is precisely described in the Annual Reports of the Secretariat of the franc zone (Banque de France).
See below the critique of the most important criterion, the positive budget balance.
See Edison and Melvin (1990), Goldstein (1995), Frankel and Wei (1995), Rose (2000).
In a cross-sectional analysis of the growth of a sample of 54 developing countries, over the periods 1970-1980 and 1980-1990, we have effectively been able to show that instability of real effective exchange rates is a factor in lesser growth, because it reduces both the investment rate and the global productivity of factors (Guillaumont et alii 1999).
We do not take into account here the inflation in Guinea Bissau since the latter only joined the Union in 1997.
Laporte (1996) has shown that the instability of bilateral real exchange rates, calculated for the periods 1970-72, 1979-81, 1989-91 as the average of the variances on a seven-year trend was two to three times lower among countries of the WAMU than among the other countries of West Africa (p.104)
Figure drawn from Ouedraogo (1999) (Source: BCEAO and National Sources: Mali and Côte d’Ivoire)
Source: Banque de France, Secretariat of the Franc Zone.
Specific effects cannot be demonstrated in this type of model as fixed effects because they remove variables invariant over time and notably the variables representing the regional agreements. They are demonstrated as random effects which, as they can be correlated to certain explanatory variables of the gravity model, for example GDP, impose an estimation with instrumental variables proposed by Hausman and Taylor (1981).
C. Carrère also shows that monetary union leads to a trade creation while customs union is reflected in part by a trade diversion.
Covering the whole of this region.
On the difficulties of implementing this dual project, see Masson and Patillo (2001). Currently because of the difficulties met, a second union is envisaged without Nigeria.
We do not deal here with the question (posed by the Dakar study group in 2003) of whether the functions of monetary policy and administrative control of the Central Bank management should be exercised by the same council, as is currently the case of the Executive Board of the BCEAO. This separation has been envisaged so as to maintain the place of the representatives of France in the definition of monetary policy but not in the administration of the Bank, a distinction which does not really seem justified (see below) and no longer seems to be on the agenda.
In the United States the term of office of the seven members of the Governing Council is 14 years whereas that of the President and Vice-President, chosen among these members, is renewable every four years.
This tax is paid by the commercial banks, but its fiscal incidence depends on the legal conditions in which these banks fix their creditors and debtors interest rates (free or administered) and on the market situation.
See Memorandum from France to the Committee for Aid and Development (CAD 2004)
Article 67 of the statutes of the BCEAO.
Four supplementary criteria of a secondary level have been defined, namely: aggregate employment earnings do not exceed 35% of tax revenue; public investments financed on internal resources reach 20% of tax revenue; the current deficit of the balance of payments (outside of grants) related to nominal GDP does not exceed 5%; tax revenue is at least 17% of nominal GDP.
This counter-cyclical action by the BCEAO could be associated with an international action seeking to modulate the servicing of the foreign debt of the States according to the international evolution of the price of goods exported by each State (see Guillaumont et alii, 2005).