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At the Summit of January 2003, the Heads of State of the West African Economic and Monetary Union (WAEMU) expressed a desire for a reform of the institutions governing this Union. At the initiative of the governor of the Central Bank of West African States (known under its acronym in French, BCEAO), the Bank common to the eight States participating in the West African Monetary Union (WAMU) and in the West African Economic and Monetary Union (WAEMU) [1][1] The WAEMU currently includes eight West African States:... since 1994, a study group [2][2] This study group met in Dakar between June 18 and October... has reviewed all of the provisions governing the Monetary Union, and has suggested a series of reforms. The essential objective of the proposed reforms is to render the BCEAO independent of the political power that all the governments of the States of the Union represent, and with which the French government is associated. The purpose of this article is to analyse the merit of such a reform and the conditions for its success.


Currently the Central Bank of West African States is under the dependency of the States, according to the texts which govern it (WAMU Treaty and statutes of the Central Bank). The Council of Finance Ministers of the WAMU “defines the monetary and credit policy of the Union”. The Conference of the Heads of State settles questions which would not have been solved by unanimous agreement of the Council of Ministers. The Executive Board of the BCEAO [3][3] See articles 49 and 52 of the statutes of the BCEAO..., which implements monetary policy “in the framework of the directives of the Council of Ministers” is made up of directors nominated by the governments of the States participating in the management of the Bank (that is the States of the WAMU as well as France), each of them nominating two representatives. The presence of representatives of the French government on the Executive Board of the BCEAO is explained by the membership of the States of the WAMU in the franc zone. Thus the CFA franc (franc of the African financial community) issued by the BCEAO [4][4] This CFA franc is a currency distinct from the “franc... has a fixed parity with the currency of France (currently with the euro). On the other hand, the BCEAO benefits from an “operations account” with the French Public Treasury which guarantees that it can ensure the convertibility of its currency whatever the balance of the Union’s balance of payments. Therefore this balance can go into debt without any a priori fixed limit of duration or amount.


It would, however, be wrong to deduce from this that the BCEAO “is totally in the hands of the African governments” [5][5] In Napoleon’s words “I want the Bank to be sufficiently..., and secondarily of the French government. The multinational character of the Bank shelters it from unilateral decisions by a government. On the other hand, the strong personality of the successive governors, coming from the main country of the Union (Côte d’Ivoire) and the longevity, unusual for a Central Bank, of their office [6][6] The governor is nominated by the Council of Ministers... have given the BCEAO a de facto autonomy. The pre-eminence of the government of the Bank has been strengthened by the fact that through its significant financial resources it disposes of a large and competent personnel, as well as an excellent infrastructure.


That an adaptation of the institutions of the WAMU, and through it of the franc zone, to the tenor of the times is envisaged is not surprising. Over the last 15 years numerous Central Banks around the world have acquired their independence, notably the Banque de France in 1993, as a prelude to its integration in the European System of Central Banks. The WAMU, which is one of the oldest monetary unions (in 2002 it celebrated its 40th anniversary), has already undergone significant structural reforms. It is in light of this institutional history that the new reform envisaged can be understood.


This article is organised in the following fashion. First, it will situate the independence of the BCEAO in the extension of the preceding reforms, and then it will study the advantages that the West African Monetary Union could draw from a greater independence of the BCEAO. Finally, it will analyse the problems that can be posed by the reform and deduce from this the conditions required so that this independence is effective, but also politically acceptable.

1 - A little history


Three dates stand out in the history of the BCEAO: 1973, 1994 and 1999.

1.1 - The Africanisation of the BCEAO


A new WAMU treaty was signed in 1973, replacing that of 1962, accompanied by new BCEAO statutes which allowed the Africanisation of the Central Bank. Its seat was transferred from Paris to Dakar, the role of the purely African authorities was strengthened, notably through the allocations given to the Council of Ministers of the WAMU, and the place of the representatives of the French government in the Executive Board of the Central Bank has gone from one third of the members to one seventh [7][7] It went down to one ninth with the membership of the... (Guillaumont P. and S., 1984).


In this new institutional framework, the instruments of monetary policy and its practice have been modified on several occasions. First in a more expansionist and interventionist direction with the intention of favouring the economic development of the States of the Union, then, from 1989, in a direction more respectful of market mechanisms and the goal of correcting external imbalances.

1.2 - The creation of the Economic Union


The second important reform was that of 1994. At the same time that the CFA franc was devalued by 50% [8][8] At the same time as the other CFA franc., the Treaty of Economic and Monetary Union was signed which complemented the monetary union in such a way as to transform it into an economic and monetary union (article 2 of the Treaty). Three objectives were pursued: the progressive and now virtually completed realisation of a common market [9][9] The WAEMU is thus the successor to three institutions..., a multilateral monitoring of economic performances and policies (notably public finances) so as to ensure their convergence, accompanied by tax harmonisation, and the implementation of regional sector-based policies, this third aspect being the least advanced [10][10] The community bodies include a Commission in which....


Thus the sequence of regional integration has been the opposite of the European sequence: monetary union in Europe was preceded by a common market, which had been itself preceded by a strong sector-based policy with the European Coal and Steel Community (ECSC). As we will see below, far from being open to criticism, the West African sequence appears well-adapted to the situation of the African economies, which were undoubtedly too vulnerable for the removal of customs duties to take place in a situation of instability of their bilateral exchange rates.

1.3 - The pegging of the CFA franc to the euro


The WAMU could not remain outside of the monetary upheaval represented by the creation of the euro, substituted for 11 European currencies, including the franc [11][11] The currencies of Germany, Austria, Belgium, Spain,..., in January 1999. The CFA franc found itself de facto pegged to the euro and its parity in euros was automatically determined [12][12] As the rate of conversion between the euro and the.... The African governments and the governors of the Central Banks of the franc zone, in West Africa as in central Africa, have wished Europe to recognize the specificity of their monetary relations with France and, to a certain extent, confirm their monetary cooperation with France (Guillaumont and Guillaumont Jeanneney, 2002).


Yet, at the time of the adoption of the Maastricht Treaty, the French authorities asserted that the monetary agreements of the franc zone could not be affected by it, as it was the French Public Treasury and not the Banque de France which guaranteed the convertibility of CFA francs. Indeed, according to article 109, paragraph 5, of the Maastricht Treaty, the member States of the European Union maintain the freedom to conclude international agreements if they do not damage the community scope of activities and agreements in the area of economic and monetary union. Moreover the Treaty does not stop the member States from giving loans to whomever they like, and the potential size of the debits of the “operations accounts” is too weak to have any serious effect on the foreign reserves of the European Union. This has not been the viewpoint of other European States who argued that the first paragraph of the same article 109 of the Maastricht Treaty should apply to the franc zone: according to this paragraph, the Council of Ministers of the Union has the power to “conclude formal agreements on an exchange rate system for the Ecu (which became the euro) in relation to non-Community currencies”.


A political compromise was finally found [13][13] Which rests on paragraph 3 of article 109, according...: France was authorised to maintain the agreements and invited to conserve their implementation. Nonetheless, this same decision included an innovation of considerable scope: a decision of the Council, on recommendation of the Commission and after advice from the European Central Bank (ECB), would be necessary for any change in the scope of the agreements (admission of a new State) or of their nature (for example, a challenge to the guarantee of convertibility of African francs at a fixed rate). On the other hand, and naturally enough, France has a duty of information to its European partners regarding the functioning of the zone. Notably if the African States decided one day to devalue one or other of the CFA francs, which remain within their powers, France would be obliged to inform its European partners of this in advance [14][14] According to the Agreement of Cooperation between the....


The States of the two African Monetary Unions of the franc zone were pleased to see the European Union concern itself with their monetary regime to the point of strengthening the guarantee of convertibility of their currencies so that in principle, France is no longer authorised to decide to challenge it alone. The question is posed as to whether a status of independence for the BCEAO, liable to justify a certain withdrawal of France from the government of the Central Bank, would present a challenge to the scope of the agreements and would imply then an agreement from the European bodies.

2 - The arguments for independence


Two main arguments can be advanced to justify giving more independence to the BCEAO. The first is that which has underpinned the independent status of the big Central Banks of the world, namely increasing the effectiveness of monetary policy by reinforcing the credibility of the decisions of the monetary authority. The second is more specific to the BCEAO, as the multinational bank of developing countries. To strengthen the powers of the Central Bank is to reduce the risks of the monetary union falling apart in the case of a disagreement among governments on the monetary policy. Indeed, as we have already stressed, in West Africa monetary integration preceded trade integration, contrary to what happened in Europe and, covering the same geographical space, it appeared as a necessary condition for the effective realisation of a common market. Thus the independence of the Central Bank could contribute to the success of the economic integration of the States of the WAEMU.

2.1 - Independence of the BCEAO and credibility of its policy


In the 1960s and again at the beginning of the 1970s, economic theory taught that macroeconomic policy should make a trade-off between inflation and unemployment. A significant difficulty of monetary unions seemed at this time to result from different national preferences concerning inflation and unemployment. But following the critiques by Friedman (1968) and Phelps (1968), it has been recognised that the decreasing relationship between inflation and unemployment (the Phillips relation) was only at best a transitional phenomenon, and that a country choosing high inflation to reduce unemployment saw its Phillips curve move upwards. Since the publication of innovative articles by Kydland and Prescott (1977) and Barro and Gordon (1983), a new theory (based on the hypothesis of rational anticipations) has come to the fore in terms of the macro economy (de Grauwe 1999): monetary policy comes up against the problem of the temporal incoherence of decisions and the lack of credibility of the monetary authority.


According to this theory, the behaviour of the monetary authority and that of the economic agents can be analysed as a non-cooperative game ending in a non-optimal situation, characterised by the concomitance of excessively high inflation and unemployment remaining at its natural level. Only a monetary policy that takes the economic agents “by surprise” is liable to boost employment and production, because it is only when anticipated inflation is underestimated that the increase in the remuneration of labour (in the form of salaries or margins) does not compensate for all the inflation, and the real remuneration of labour can diminish. In these conditions, economic agents whose anticipations are supposedly rational expect that the monetary authority, with a view to benefiting from inflation forecasts lower than reality, announces a restrictive monetary policy while in fact practicing an expansionary policy so as to “take them by surprise”. As this double game of the Central Bank is anticipated by economic agents, the latter do not have confidence in the announcements of the monetary authority and their anticipations of inflation exercise a constraint on the monetary authority wishing to pursue a restrictive policy. Indeed a non-credible restrictive monetary policy leads to an “overestimation of inflation” by economic agents, an excessive real remuneration of labour and an increase in unemployment. To avoid this harmful linkage the monetary authority is forced to ratify the inflationary anticipations of economic agents by a monetary policy which is too expansionary for its liking. In other words it is obliged to accept a rate of inflation sufficiently strong to persuade the economic agents that the Central Bank will not allow inflation to go any further.


The theory according to which the constraint of credibility exerted on the monetary authority was at the origin of non-optimal monetary policies, was initially developed for the industrialised economies where the remuneration of labour was mainly made up of wages. In developing countries, independent work (by small peasants, artisans, more or less informal industry and commerce) is more significant than waged work and the remuneration of labour largely takes the form of margins or profits. However this theory can be transposed to developing countries. Anticipations of inflation there influence the price of non-tradables internationally (prices which depend on the equilibrium of the domestic market), and thus indirectly influence the remuneration of labour. If the exchange rate is flexible, the Central Bank brings about a nominal depreciation of the currency on the exchange market by an expansionary monetary policy. This latter leads to a real depreciation favourable to the expansion of the economy on condition that the inflation induced is underestimated. From there economic agents anticipate, as in the developed countries, that the monetary authority will try to “take them by surprise” and exercise an identical constraint of credibility on the Central Bank (Devarajan and Rodrik, 1991).


This renewal of macroeconomic analysis has changed the perspective on the advantages and costs of a monetary union. It played a significant role in the discussions prior to the creation of the European Monetary Union (de Grauwe, 1999). For the countries of the South of Europe (and to a certain extent for France) which suffered from a relatively high inflation rate and where the monetary authorities had a deficit of reputation, joining the “European Monetary System” (prelude to the European Monetary Union) was a way of importing Germany’s reputation for monetary stability, and of reducing costs in terms of jobs and of producing monetary disinflation.


With its current statutes, will the Central Bank of West African States suffer from a deficit of credibility, imposing a constraint on it regarding its monetary management which would justify attributing a status of greater independence to it in relation to the governments?

The credibility of the BCEAO, associated with the exchange regime of the WAEMU


As we have just recalled, a monetary policy of economic expansion in small developing economies essentially involves depreciation in the real exchange rate. That is why a fixed exchange rate regime is undoubtedly, in developing countries more than in industrialised economies, a factor of credibility in a monetary stability policy. Indeed the adoption of a fixed exchange rate regime is recognised as one of the ways that developing countries or those in transition can use to increase the credibility of their monetary disinflation policy (Devarajan and Rodrik 1991, Ghosh et alii 1995, Sachs 1996, Fielding and Bleaney 2000). Whereas the exchange regime in Europe is a floating regime, the West African Monetary Union’s membership in the franc zone, which involves the linking of the CFA franc to the euro and guarantees its convertibility, is a factor of credibility in the monetary policy, which could render an independent status for the Central Bank less necessary.


In West Africa the favourable effect of fixed exchange rates is itself strengthened by the existence of a monetary union. Changes of parity appear less probable inasmuch as they involve unanimity of heads of State. The devaluation of CFA francs, which took place in 1994, amply demonstrated the difficulty of such a consensus. The favourable effect of the fixed exchange rate on the credibility of monetary policy is also strengthened by the convertibility of the currency, since the trilogy constituted by the fixed nature of the exchange rate, the convertibility of the currency, and a monetary policy which is different from that of the country for which the currency serves as anchor, is not sustainable over the long term. If one finds this problematic, it would be justified to lift the restrictions on exchange operations which have been instituted in the WAEMU, mainly for capital movements, in contradiction with the initial principles of the franc zone [15][15] See the regulation of December 20, 1998 relating to....


Even then it is necessary that the choice of a fixed exchange rate regime and convertibility of the currency is itself credible. In a certain sense, the monetary cooperation of the WAEMU with France plays in favour of the credibility of the exchange regime. On the one hand France participates in the Executive Board of the BCEAO, on the other hand the granting of its guarantee of convertibility to the CFA franc (thanks to the mechanism of the operations account) involves the existence of a statutory limit to the advances of the Central Bank to the African Public Treasuries, and a commitment by the States to toughen monetary policy in case of BCEAO insufficient foreign reserves. In the opposite sense, the guarantee of the operations account confers, in a certain way, an artificial character to the convertibility of the currency. It has also been asked if it did not lead to the removal of responsibility from the governments and the Central Bank in the conduct of monetary policy, and thus to blur the element of credibility normally associated with the convertibility of the currency (Guillaumont and Guillaumont Jeanneney, 1995).

The lessons of the monetary evolution in WAMU


An element of response to the question of whether the existence of the West African Monetary Union and its membership in the franc zone are sufficient elements for the credibility of the BCEAO’s policy of monetary stability can be sought in the monetary evolution of the Union since 1962 [16][16] See the Balance Sheet that we have presented, showing.... If we leave aside the episode of the devaluation of 1994, inflation was significantly lower than it has been in the other developing countries, African or non-African (Guillaumont, Guillaumont Jeanneney and Plane, 1988; Devarajan and de Melo, 1991; Elbadawi and Nadj, 1996). This remains true in recent times: from 2002 to 2004 the average rate of inflation was 1.9% in the WAEMU, the average for the whole of sub-Saharan Africa (apart from Nigeria and South Africa) was 16.4% [17][17] See IMF, Sub Regional Economic Outlook, 2004. The regional... at the same time. However, it cannot be denied that during the 1970s the WAMU experienced an excessive growth of the money supply which reached an annual average of 14% between 1967 and 1973, and nearly 30% between 1973 and 1978 (see Table 1). This monetary experience was reflected in an inflation more rapid than in France and thus by a noticeable appreciation of the real exchange rates of the States of the WAMU. The latter were thus forced to adopt a painful adjustment policy in the 1980s. This policy was relaxed in 1984 (the growth of the money supply was then close to 16%), before being strengthened in the second half of the decade and at the beginning of the 1990s. The growth of the money supply had an annual average of zero from 1988 to 1993, which did not succeed in stopping the devaluation of 1994. After this episode and the induced increase of the money supply, the growth of the money supply returned to the more reasonable average rhythm of 7.5% from 1995 to 2000. In recent years it has been irregular, relatively strong in 2001 and still more in 2002, when it reached 16%.

Table 1 - Growth Rate of Money Supply in WAMU (%)Table 1

The fluctuations of monetary policy are certainly explained by an international economic context which has been extremely variable during the last four decades and is reflected by a strong instability in the terms of trade of the countries of the Union. But they also reveal that common monetary management has demanded a certain “apprenticeship” and that monetary integration and membership in the franc zone have not been sufficient for the permanent mastering of the money supply.


The excessive expansion of the money supply in the 1970s resulted from the dramatic rise (from one time to another according to the countries) of the price of their main exported products. The boom in primary commodities, accompanied by easy access to international financing, led the States of the Union, like many other developing countries, to expand their foreign debt and to massively increase their budgetary expenditure, swelling the personnel of the civil service, implementing vast public investment programmes, multiplying public undertakings and sometimes nationalising industries. Monetary creation, originally resulting from the growth of foreign reserves, was then fed by the expansion of domestic credit. Credit was abundantly distributed to public enterprises, sometimes under the form of agricultural seasonal credit (re-discounted by the BCEAO at a preferential rate outside of the re-discount ceilings) which partly diverted from their real object and financed the fixed costs of agricultural marketing and extension bodies. When the prices of primary commodities fell and international financing dried up, the Public Treasuries resorted to monetary financing of their deficit. The Public Treasuries used the margin of borrowing which they had with the banking system, the advances to Public Treasuries being initially much lower than the statutory limit of 20% of tax income. Then they evaded the rule thanks to the banking credits accorded to the enterprises, mainly public, with respect to which they also accumulated payment arrears. Beyond excessive monetary expansion, this policy was accompanied by a profound degradation of the quality of banking portfolios.

The stakes of regional cooperation: effects of dilution of preferences and institutional creation


During the conference organised by the World Bank and the Center for Economic Policy Research (CEPR) in April 1992 on “the new dimensions of integration”, J. de Melo, A. Panagariya and D. Rodrik (1993) showed how institutional cooperation among States can be used as an asset for the implementation of good policies, where their discretionary action potentially leads to non-optimal policies. The authors postulate that the freedom of action of the governments in the choice of their economic policy is constrained by the presence of lobbies which represent specific interests and whose preferences are different from those of the governments. According to their model, the positive effects of regional cooperation thus pass through two main channels: regional cooperation reduces the weight of the politically important groups in each economy (dilution of preferences effect) and it gives the States a greater liberty in the choice of institutions, which are freed of the historic constraints specific to each State (institutional creation effect). It seems that at the origin of the WAMU, these two favourable effects of regional integration had not been able to operate fully (Guillaumont and Guillaumont Jeanneney, 1993). “The dilution of preferences effect” was lessened by the commonality of the pressure groups: everywhere the educated urban classes pleaded for an extension of the civil service and of the parapublic sector, in such a way that special interests were conjugated instead of being neutralised. “The institutional creation effect” was weakened because the BCEAO was a successor to “Institut d’Emission de l’Afrique Occidentale Française”. Inheritors of a common colonial past, the States of the WAMU could not escape, in drawing up the statutes of their Central Bank and in the management of the currency, the tradition of subordination of the Banque de France to the Ministry of Finance. As we have stressed, although the BCEAO is a multinational bank, it was initially conceived as remaining, in a certain sense, “in the hands of the governments”.

The progressive strengthening of the monetary power of the BCEAO


The West African Monetary Union has not escaped the general movement of ideas in favour of the autonomy of the monetary power, nor the critique of monetary policies implemented in the developing countries, exercised through negative real interest rates and a selectivity of credit (policies characterised as “financial repression”) (Shaw 1973, Mac Kinnon, 1973). Thus the instruments of monetary policy were reformed, so as to increase the effectiveness of the interventions of the BCEAO, and monetary action was progressively freed of the constraint that budgetary deficits imposed on it [18][18] The evolution of the modalities of the BCEAO’s monetary....


From 1989 onwards the means at the disposal of the BCEAO to implement its monetary policy were effectively strengthened. The supervision of credit and refinancing ceilings were extended to agricultural seasonal credits. The sectoral coefficients of credit, which favoured certain sectors or enterprises without sufficient consideration of their solvency, were suppressed. Individual credit limits determining the re-discountable nature of credit were henceforth granted according to the financial situation of the debtors and no longer according to their sector of activity. A more significant place was given to policy in relation to interest rates which, in real terms, became positive. This extension of the role of interest rates was realised progressively, with the suppression of preferential discount rates (in 1989), with the liberalisation of the conditions of banks (creditors in 1989 and debtors in 1993), and with the reform of the interventions of the BCEAO on the monetary market in October 1993 and July 1996. Finally a system of required reserves, based on demand deposits and short-term credits, was set up in October 1993, and its base was enlarged in March 2000 to seasonal credits and claims abroad. However, this system proved insufficient to absorb the liquidity surpluses of the banks, which remained largely “out of bank” so that the role of the key interest rates of the BCEAO was limited.


The recurrent agreements that the States of the Union have passed with the IMF have naturally favoured a more restrictive monetary policy, notably because their conditionality work in favour of a more responsible budgetary policy. Finally the signature in January 1994 of the Treaty of West African Economic and Monetary Union, which envisaged the multilateral monitoring of economic policies and strengthened by the Pact of convergence, stability, growth and solidarity adopted in 1999, has pushed things in the same direction. This pact has increased the importance accorded to the monitoring of the budgetary policy of the States, in creating a hierarchy of convergence criteria (of first and second ranks) [19][19] See below the critique of the most important criterion,.... The will to reduce the inflationary impact of budgetary deficits was simultaneously manifested by a hardening of the rule which, according to the statutes of the BCEAO, applied to the advances of the Central Bank to the African Public Treasuries. In September 1998, the Council of Ministers of the WAEMU decided to freeze statutory advance ceilings at the level reached in December 1998, with a view to ending the direct financing of the BCEAO from 2001. Faced with the difficulty of attaining this objective and the persistence also of certain overshootings of the statutory limit, in 2002 a more realistic programme of repayment of financing was introduced, which should extend over 10 years. This commitment from the States prefigured one of the traditional provisions of the status of independence of a Central Bank.


The attribution of a greater independence to the BCEAO in relation to the governments began in its institutional evolution and in its practice of monetary policy. It would be capable of strengthening the credibility of monetary stability which currently characterises the Union. But what is at stake undoubtedly goes beyond the effectiveness of monetary management. The independence of the Central Bank could well be a factor of continuity in the economic integration of the States making up this union.

2.2 - Independence of the BCEAO and continuity of economic integration


The independence of the Central Bank in relation to the governments could be a factor of continuity in the West African Monetary Union, faced with the political troubles which often affect African countries, as witnessed by the current situation of latent civil war in Côte d’Ivoire. A monetary union functions as a cooperative of States. Analysing the problems posed by the governance of the international institutions, Jean Tirole (2002) reminds us “that a recent corpus of economic research has shown the difficulty of managing cooperatives for users with dissonant objectives. Conflicting objectives give rise to bargaining, a process of slow decision-making, and the formation of majority coalitions making ineffective choices. Conflicts at the level of the Executive Board render the task difficult for the leading team who, instead of concentrating on their mission, occupy their time seeking political compromises” [20][20] p. 295. This search for consensus is the source of ineffective management. More seriously, if it does not end, it can lead to a breakup of the Union. The difficulty of consensus could be exacerbated in the event of an enlargement of the WAEMU to other States of West Africa.


To demonstrate the stakes represented by the continuity of the WAEMU, we should recall successively:

  • why economic integration is a factor of economic development, in particular in small developing countries such as those which make up the WAEMU

  • that monetary union contributes effectively (and without doubt as much as customs union) to the development of intra-union exchanges

  • finally that monetary union was the indispensable precondition to the effective realisation of customs union.

The small size of the States making up the WAEMU


With regard to international criteria the countries which form the WAEMU are indubitably of small size in terms of both population and national product. In 2002 the biggest of them, Côte d’Ivoire, had 17 million inhabitants and a gross national product of 10.2 billion dollars (according to the method of the World Bank Atlas) and the smallest, Guinea-Bissau, one million inhabitants and a gross national product of 200 million dollars. Small demographic size constitutes a handicap to growth, all the more in that these countries have a low level of development (they are all, with the exception of Côte d’Ivoire, classed by the United Nations among the “Least developed countries” (LDCs)), and suffer from very high transport costs for their foreign trade. In allowing economies of scale, regional integration can then favour the development of productive activities.

Monetary union, factor of development of intra-regional exchanges


Monetary union is a factor of trade extension by several channels. The elimination of transaction costs linked to exchange operations is the most immediate and visible advantage to the use of the same currency. Monetary union gets rid of the uncertainty on nominal exchange rates in intra-union trade: importers and exporters inside the union are no longer in a position of exchange and thus no longer have to cover for exchange risks. In the longer term, monetary union reduces the risks inherent to foreign trade by favouring the stability of real exchange rates between States of the Union. These advantages of monetary union have recently excited a revival of interests from economists (Frankel and Rose, 2000).


Academic economists have long minimised the advantage which results from the absence of exchange risks, considering that they can be covered at low cost through derivatives. If this argument is pertinent for the industrialised countries, it is much less so for the developing countries where forward cover is costly and beyond the scope of most enterprises, in particular the small and medium enterprises which are the most involved in regional trade. Admittedly, the results of quantitative analyses relating to the impact of the variability of nominal exchange rates on the foreign trade of States at the world level are ambiguous [21][21] See Edison and Melvin (1990), Goldstein (1995), Frankel..., probably because this impact differs according to the level of development of the countries. Indeed a study (Sauer and Bohara, 2001) has argued that the variability of exchange rates has negative effects on exports coming from Africa and South America, even if it does not on those coming from Asia and industrialised countries.


More important, undoubtedly, than the stability of nominal exchange rates for the long-term development of intra-regional trade is that of real exchange rates between the countries of the Union. The variability of real exchange rates, when it does not result from a difference of growth of productivity between countries, (Balassa-Samuelson effect) exerts two types of an unfavourable effect on the development of productive activities induced by foreign trade (Guillaumont Jeanneney 1998). On the one hand it leads to investment decisions which prove ex post erroneous (by excess or by default). The bad allocation of resources between activities turned towards domestic demand and those oriented towards regional demand leads to a lower productivity of capital. The reduced profits of the enterprises reduce the volume of investment. On the other hand the instability of real exchange rates creates a feeling of uncertainty as to the relative profitability of the activities and constitutes ex ante a brake on investment [22][22] In a cross-sectional analysis of the growth of a sample....


The stability of real exchange rates between countries belonging to a monetary union is certainly not automatically realised by the use of a single currency, even if the latter indisputably favours it. In spite of a common monetary policy (such as that implemented by the BCEAO), differences of inflation rates subsist in the monetary unions, as much as among regions inside a country. In the case of the West African Economic and Monetary Union, these differences are certainly not due only to differences in growth of productivity (Balassa-Samuelson effect), but result also from asymmetric exogenous shocks and from budgetary policies remaining the responsibility of the States, and which have often been pro-cyclical. If we consider the period 1995-2004, the span of annual inflation rates, that is the maximum spread in the inflation rates of the different members of the Union, has evolved between 2.2 and 6.9 percentage points [23][23] We do not take into account here the inflation in Guinea... (see Table 2). This spread seems to have a tendency to decrease. We can note by way of comparison that in 2000 the span of inflation rates in the European Union was 4 percentage points, or roughly identical (Artus, 2002). If these differences in annual inflation rates are not negligible, they tend to correct themselves over the medium term: in 2003 the maximum spread in consumer price indices on the basis 1995 = 100 was situated between Benin (index 128) and Senegal (index 113), or a spread of 15%. It appears thus that the West African Monetary Union is a factor of relative stability of real bilateral exchange rates between the countries of this Union [24][24] Laporte (1996) has shown that the instability of bilateral....

Table 2 - Span of Inflation in the Countries of the WAMU (Outside Guinea Bissau)Table 2

However, authors who are interested in regional agreements in Africa have shown a certain scepticism as to their effectiveness in increasing trade and thus contributing to the development of the economies. This scepticism rests on the weak share of intra-regional trade in Africa. The WAEMU is no exception to this. Official trade inside the Union constituted 12% of total exports [25][25] Figure drawn from Ouedraogo (1999) (Source: BCEAO and... in 1997 and corresponded to around 3% of the GDP of the WAEMU. But, if we subtract from the exports of the WAEMU those of primary commodities exported on the world markets and then “essentially destined to the rest of the world”, the share of intra-union trade in the exports was at 21% in 1997 (Ouedraogo, 1999); moreover, to this official trade we should add the informal trade for which the transaction costs are, in the same way as for formal trade, reduced by the single currency. The importance of this informal trade appears in that of the notes circulating in a country different from the country of issue (or, in 2000, 67% of the fiduciary circulation [26][26] Source: Banque de France, Secretariat of the Franc...).


The weak share of intra-regional trade is explained by the lack of complementarities of the African economies, and by the numerous factors liable to limit internal exchanges: lack of transport infrastructures, more or less informal road tolls, weakness of human capital, a political and institutional environment not very favourable to the creation of stable commercial intra-regional infrastructures (de Melo et alii, 1993). Yet a certain number of quantitative studies indicate that the WAEMU has contributed more to the development of intra-regional trade than the other African regional agreements (Foroutan and Pritchett, 1993; Laporte, 1996; Masson and Patillo, 2004; Carrère, 2004). Let us recall the results of the most recent of them.


Like previous studies, the analysis of C. Carrère is based on a gravity model which allows comparison of trade in the context of a regional agreement with the situation which would have prevailed without this agreement. This type of model explains the bilateral trade of the countries by their respective income, their population and the costs of transport between these countries (function of infrastructures and distance). To these factors it is possible to add dummy variables representing the regional agreements. This study covers the period 1962-1996 and considers the bilateral trade of 150 countries of which 131 are developing countries; it excludes trade between countries of the OECD of a nature too different from that of African trade. The econometrics of this study are more robust than that of previous studies because the panel estimation allows us to take into account the non-observable factors specific to each couple of importer and exporter countries which influence the level of their bilateral trade (historic, cultural, linguistic, ethnic, geographical or political factors) and whose impact could be confused with that of the regional agreements [27][27] Specific effects cannot be demonstrated in this type....


The main conclusion of this study is that the regional agreements made among the countries of the WAEMU (monetary agreement and trade agreement) have tripled intra-union trade. Considering that the stability of bilateral nominal exchange rates is the main consequence of a common currency, C. Carrère introduced an indicator of the variability of bilateral nominal exchange rates in the gravity model, which allows us to conclude that at least half of the increase in regional trade is due to the common currency [28][28] C. Carrère also shows that monetary union leads to....

Monetary union a prior condition to the realisation of customs union


In Europe the realisation of the common market took place much before the realisation of monetary union. And the single currency as yet concerns only some of the States of the European Union. Not only the new member States but also some who have been members of the European Union for a long time remain outside of the Monetary Union (for example, the United Kingdom, Denmark and Sweden).


The integration of the countries of the WAEMU has happened according to an opposite and original sequence, with monetary integration preceding the common market. The quantitative analyses of the trade integration agreements that we have just mentioned seem to justify this approach. Monetary union appears as a prior condition to the common market in developing countries which are subject, in the absence of a single currency, to great monetary instability. The breadth of risk that instability in real exchange rates represents for enterprises is amply illustrated a contrario by the consequences of the recurrent depreciations of the naira in relation to the CFA franc, on the official market and still more on the parallel currency market. These depreciations put the industries of the countries in the franc zone in difficulty, where customs fraud renders trade protection illusory, in other words creates a de facto free trade zone for informal trade (Samba M. O., 1996).


If a common currency is a condition for trade integration in Africa, we can understand the failure of the ECOWAS (Economic Community of West African States [29][29] Covering the whole of this region.) created in 1975, which programmed a reduction of tariffs between the States of the Community, periodically renegotiated (notably in 1990), but in fact little-applied and with a weak impact on regional trade. (It had an increase of only 22% according to the aforementioned study by C. Carrère). It is also understood that the question arises periodically of membership of the WAEMU for new States, like Cape Verde, Gambia, Guinea, Ghana, and that there even exists a project of extension of the monetary union to all of West Africa. First, through the creation of a monetary union between West African countries which do not belong to the WAEMU, then through a merger of the two unions [30][30] On the difficulties of implementing this dual project,....


Faced with the extension of the monetary union to countries which do not have the same culture of monetary stability, it is normal to seek a greater autonomy of the BCEAO to protect the CFA franc from possible political vicissitudes in the States belonging to the WAEMU.

3 - The requirements of independence


In order for the Central Bank of West African States to become more independent of the political regime, several provisions which govern it should be changed so as to respond to the criteria which characterise the big independent Central Banks in the rest of the world. But any status of independence for a Central Bank implies counterparts essential for the acceptability of the reform.

3.1 - How can the statutes of the BCEAO be modified so as to render its governance independent of the States?


The conditions of independence for a Central Bank are well-established, they have in particular been defined during the creation of the European System of Central Banks. Essentially three in number, they could pose some adaptation problems to the specific situation of developing countries.

A clear mission attributed to the Central Bank


Jean Tirole (2002) particularly insists on the fact that in terms of the independent agencies “the most effective are those who have a simple mission… it is not always good to keep several pots on the boil. The abandonment of otherwise desirable objectives allows us to focus the agency and make it responsible, the evaluation of its performance being greatly simplified” [31][31] p. 298.


That is why the safeguarding of the currency is still considered as the objective which should be primarily assigned to an independent Central Bank. Yet this is never an exclusive objective in circumstances where the value of the currency does not seem in peril and where on the other hand economic activity manifestly needs to be stimulated. Thus article 105 of the Maastricht Treaty (which reappears in article 2 of the Protocol on the statutes of the European System of Central Banks (ESCB) and of the European Central Bank) prescribes that the “primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, the ESBC shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community…” Taking into account the weak level of development of the economies of the WAEMU, it would be conceivable to assign a complementary objective of promotion of growth to the BCEAO, according to a formulation of the same type. But as these two objectives can appear to a certain extent to be contradictory, we should define who must have the responsibility of fixing the inflation objective.


In Europe it is the European Central Bank that chooses its inflation target, whereas in England where the Central Bank has received a status of operational autonomy, it is the government which chooses the objective. This prerogative of the European Central Bank has been all the more criticised in that it has chosen a low average objective, in the event less than 2% per year (but near this threshold since 2003), considered as too low by several economists (see for example Artus, 2002). Three reasons form the basis of this critique. On the one hand, the consumer price indices do not easily integrate progress with the quality and the innovation of goods and tend to overestimate price increases. On the other hand, the modification of the price structure which accompanies economic development can imply a certain average price increase, taking into account the difficulty that exists in lowering nominal remunerations. Finally, in a monetary union, as we previously stressed, price increases will not be uniform in every country if the growth of the productivity of labour is different (Balassa-Samuelson effect). This hypothesis has all the more chance of being realised if the countries of the union, like those of the WAEMU [32][32] See Table 2., are at unequal levels of development. Thus an average level of price increase that is too low can imply a deflation in certain countries.


The choice of inflation target is a less pointed question in the case of the WAEMU than in that of the European Monetary Union. The Heads of State or government decide on the parity of the currency (in other words the maintenance of parity or devaluation). The inflation objective, even if it is announced by the BCEAO, should be coherent with the exchange rate policy, whereas in Europe the floating of the euro gives a much more significant weight to the inflation target.

Directing bodies of the Central Bank independent of the pressure of States


This second condition is obviously essential. It should be explicit in the statutes of the BCEAO, as in article 107 of the Maastricht Treaty for the European System of Central Banks, according to which “… neither the ECB, nor a national Central Bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national Central Banks in the performance of their tasks.”


The independence of the members of the different bodies of the directorate of the BCEAO should obviously be strengthened by the rules of nomination of governors and vice-governors as well as the other members of the board which is responsible for monetary policy as well as control of the management of the Central Bank (here called Monetary Council) [33][33] We do not deal here with the question (posed by the.... The members of this Council should be designated by common agreement of the Heads of State or of government and possibly subjected to the approval of parliament. It is desirable that their term of office is long (for example eight years as in Europe [34][34] In the United States the term of office of the seven...) and not renewable. This rule of nomination should undoubtedly apply to the directors of the national agencies who could simultaneously sit on the Monetary Council, as is the case with the Governors of the national Central Banks who sit on the Governing Council of the European Central Bank which is, in this institution, the decision-making body on monetary policy.


Independence does not signify absence of coordination between the monetary authority and those responsible for other aspects of economic policy. It is happily envisaged by the current texts that the governor of the BCEAO attends the Council of Ministers and meetings of the Commission with consultative voice (article 8 of the Treaty of the WAEMU, article 44 of the statutes of the BCEAO and article 31 of the WAEMU Treaty).

A limit to the monetary financing of the States


A radical fashion of protecting the Central Bank from the pressures of the governments is obviously to forbid it from directly financing the budget of the States, local authorities or public institutions. This is the solution presently favoured by the governments of the WAEMU, undoubtedly in imitation of Europe.


The underlying idea is not to prevent any budget deficit (the latter is significant in Europe also), but to encourage financing by indebtedness rather than by seignoriage, because debt includes a budgetary cost which tends to limit its amount, and to avoid deficits which are too significant and recurrent. Certainly recourse to the market is more difficult for the States of West Africa than for the European States, but the development of the regional financial market opens interesting perspectives. Already in 2003 Burkina Faso and Côte d’Ivoire issued (short-term) bonds and in 2004 Burkina Faso and Senegal issued Treasury Bonds at very reasonable interest rates (2.05 to 3.4%). The obligation to have recourse to the market is moreover an incentive to good governance and to the transparency of public finances. However it is necessary to avoid too strict a rule which would prevent the States from pursuing an active budgetary policy. This is one of the reasons why the independence of the Central Bank would only be politically acceptable with certain counterweights.

3.2 - The counterweights of independence


In a general manner, the management of an independent Central Bank should respect the rules which balance its power. The BCEAO is no exception to this.

The collegiality of monetary policy decisions


The monetary power can only be legitimately independent if it is exercised in a collegiate fashion, by persons who have been chosen according to their competence. That is why the Council in charge of the definition of monetary policy (the Monetary Council) should not permanently delegate powers to the sole governor of the BCEAO (for example, the power to decide the leading rate of the Central Bank or the rate of required reserves). Recall as an example that at the European Central Bank, if the Executive Board can receive delegation of certain powers by decision of the Governing Council (which is the normal decision-making body in the area of monetary policy), the Board is itself made up of the President, Vice-president and four other permanent members, that is to say the same members as the Governing Council apart from the Governors of the national Central Banks. According to this architecture, the President of the ECB maintains an eminent role in chairing the Governing Council and representing the Central Bank abroad and he is responsible for external information or communication of the Bank. This latter responsibility is very important in a context where the effectiveness of monetary policy depends on the anticipations of economic agents, and consequently signals sent by the monetary authority to the markets. Even without delegations, the Governor of the BCEAO (or its President to employ the European and American terminology) will then have considerable power and responsibility.


On the other hand, it would be normal for the regime of the Monetary Council to be framed by general rules relating to the instruments available. This normally involves the political power deciding on the nature of instruments used, if they should be uniquely liberal (action by interventions on the markets, as it is currently the case) or also regulationary (direct supervision of credit, administration of interest rates.) It also involves supervising the use of required reserves (for example fixing a span inside of which the rate will be decided by the BCEAO), since required reserves not remunerated at the market rate constitute a sort of tax [35][35] This tax is paid by the commercial banks, but its fiscal....

The transparency of the financial management of the Central Bank


In order for a Central Bank to exercise its monetary power in all freedom, it must guarantee its financial independence. The counterpart of this independence is obviously the demand for total financial transparency. This means that the accounts of the BCEAO and its agencies should be verified by the statutory auditors, as is laid down by the current statutes. It would be desirable that these auditors are not only external to the establishment (which is self-evident) and also not residents of a State of the Union, but also that they are designated on the recommendation of the Monetary Council and agreed upon by the Council of Ministers of the Union. The statutory auditors should have all statutory power to examine the books and the accounts of the BCEAO and to obtain all information on its operations. It would be possible also to envisage an auditing committee whose task would be to propose actions to improve the efficiency of the management of the BCEAO. A broad circulation should be automatically given to the documents produced by these two institutions.


The two demands that we have just recalled conform to the characteristics of the Central Banks of the industrialised countries. We now approach the problems more specific to the BCEAO.

A new definition of relations with France?


France currently has two seats on the Executive Board of the BCEAO, as does moreover every African State. Unlike the African governors who in the new status of independence of the BCEAO should be independent of the government of each State, the two French representatives would necessarily keep a political role. While playing a role of advisor with regard to the African States and giving information to the French government in the area of monetary policy, they monitor that the BCEAO respects the commitments made by the States in the agreement of cooperation which links them to France, and which would be incumbent on the BCEAO even once it became independent. These commitments have ended, since 1973, in the case of weak or negative reserve levels, of automatic measures of monetary restriction, but have remained of a supplying of the “operations account” by drawing of foreign currencies placed elsewhere, by use of drawing rights on the IMF, and finally by “calling in of the foreign currencies of commercial banks and public institutions of the Union”. Moreover, recall that, since France participates in the European Monetary Union, it has a duty of information to the European bodies on monetary management in the countries belonging to the franc zone. In the function which is assigned to them, the French representatives should logically receive the instructions of the French government. Their extreme minority position and their role as observers and advisers do not appear to be incompatible with a status of independence of the BCEAO as would be the case with a dominant position.


The current participation of French representatives in the definition of the monetary policy of the WAEMU, as well as the monitoring of the administration of the BCEAO, through their presence on the Governing Council of the Bank, is the counterpart of the aid given by France to the States of the Union, through the mechanisms of the franc zone. This aid has a dual nature. Its main form is the guarantee of international convertibility of the CFA franc. It seeks to avoid the Union’s suffering a financial and exchange crisis as a result of an exogenous shock negatively affecting its balance of payments, forcing a catastrophic devaluation of the currency or the establishment of a strict exchange control. This, possibly leading to a profound and durable economic crisis, as experienced by several developing countries over the last 40 years. This assurance is offered as a counterpart of the acceptance by the African States of rules in the area of monetary management. We have stressed elsewhere (Guillaumont and Guillaumont Jeanneney, 1998) the modernity of this modality of international aid which offers a mechanism of insurance in exchange for rules instead of supplying money against reforms; it amounts to an aid of a preventive and not a curative nature like traditional aid (Collier, 1991).


However a second component of belonging to the franc zone is the financial aid which results from the remuneration of deposits in operations accounts of the Central Banks of the franc zone. These deposits are remunerated at the marginal facility rate of the European Central Bank, which is higher by more than one percentage point than the tenders rate and is higher than the three-month deposit rate (EURIBOR). Moreover, since 1975, France has undertaken to indemnify the Central Banks of the franc zone in the case of depreciation of the French franc in relation to the special drawing rights; this undertaking has been maintained even after the replacement of the franc by the euro. Until 2002 the euro depreciated in relation to the dollar, the reserves of the BCEAO placed in the French Public Treasury were very significant (well beyond the 65% minimum demanded), and a considerable part of French aid to the African countries of the franc zone in 2001-2002 took the form of a transfer to the Central Banks (450 million Euros [36][36] See Memorandum from France to the Committee for Aid...). It seems normal then that France has access to the accounts of the BCEAO and is aware of the allocation of the profits decided statutorily by the Council of Ministers of the WAEMU [37][37] Article 67 of the statutes of the BCEAO..

A good “policy mix”


An important point of the reform relates to the coordination of the monetary policy and the budgetary policy. In a monetary union, there is a risk that certain countries endanger the value of the common currency by too expansionary a budget policy. The forbidding of advances from the BCEAO to the African Public Treasuries is not a sufficient guarantee when the States can finance their deficits by borrowing on the financial market of the Union or abroad, their membership in the Union facilitating access to these resources. There is a risk then that a price increase in certain countries will force the BCEAO to raise its common interest rates across the Union and that the indebtedness of one or other of the States will become excessive, leading to a crisis of confidence, a capital flight and a devaluation of the currency.


In this regard the West African Monetary Union suffers, like the European Union, from the absence of an economic power capable of at least defining what should be the budgetary policy of the States, taking account of the economic situation. That is why, as we have recalled above, the African governments have chosen standards that all the States should try to respect, which are inspired by the European Stability and Growth Pact. Four key criteria are thus defined in the Convergence, Stability, Growth, and Solidarity Pact:


the basic budget balance in relation to the nominal GDP is higher than or equal to zero; it constitutes the key criterion liable to lead to sanctions. Curiously this criterion allows external indebtedness, but not the domestic indebtedness of the States, as the basic budget balance is equal to the total revenue (outside of grants) less current expenditure, including interest on the debt, and less capital expenditure financed on domestic resources;

In Europe the question of the reform of the Stability and Growth Pact also forms the subject of intense debate both in political and academic circles (CAE 2004), since the preceding President of the European Commission, Romano Prodi, has characterised it as “stupid”. As in Europe the application of the Convergence Pact comes up against two problems. The first is whether, if there is too weak a level of growth of per capita income of the Union as a whole, the pact does not constrain budgetary policy excessively. The second is that of asymmetric shocks suffered by the countries of the Union resulting in unequal economic performances, which make the very principle of convergence towards a single standard debatable.


The weak growth of the WAEMU is partly explained by an investment rate lower than that of the other regions of Africa. This weak investment rate is accompanied by a chronic surfeit of liquidity of the commercial banks and since the devaluation of 1994 a considerable stock of the foreign reserves of the BCEAO. The weakness of investment is in part due to that of public investment in the areas of infrastructures, education and health. In these conditions we should question the pertinence of an objective of a zero balance of the State budgets including investment expenses which are not financed from abroad. In the same spirit Blanchard and Giavazzi (CAE, 2004) have suggested that the European rule of a maximum budget deficit of 3% of GDP should apply in excluding net investment, that is the gross investment less capital depreciation. Other authors have suggested extracting public expenditure having a scope across the European Union from the calculation of the balance, for example expenditure on research, infrastructure or transnational transport. In the WAEMU it could, for example, concern investment expenses made under the NEPAD (New Economic Partnership for African Development).


There are also business situations where a budget deficit is desirable. Recall again that the countries making up the WAEMU are economies exporting mainly agricultural products and are, as a consequence, subject to exogenous shocks which render them extremely unstable and which are often asymmetric (BCEAO, 2001; Fielding and Shields, 2001). In the presence of common exchange and monetary policies, the budgetary policy is the sole instrument which can respond to the specific conjunctures in each country. It is desirable that the national budgets can at least play the role of automatic stabiliser. A transitional deterioration of the terms of trade should lead normally to a deficit and an improvement to a surplus, and that possibly a certain dose of budgetary federalism allows the strengthening of national counter-cyclical policies.


In order that the States and the Union itself are encouraged to pursue a counter-cyclical policy, it would be desirable that the Convergence, Stability, Growth and Solidarity Pact define, for the periods of improvement of the terms of trade, an objective of a positive fiscal balance which allows governments to get out of debt in a manner to preserve a margin of manœuvre in a period of deterioration of the terms of trade. In modulating the conditions of its purchases of public securities (Treasury bills or other bonds), the BCEAO should contribute to the implementation of this counter-cyclical policy [39][39] This counter-cyclical action by the BCEAO could be....



There are good arguments for modifying the statutes of the BCEAO, in the sense of a greater independence or autonomy of the latter in relation to the African governments. The objective will be to protect the remarkable public benefit represented by a single and stable currency. However, to be politically acceptable, this reform should be accompanied by a strengthened collegiality of monetary decisions and a greater transparency of the financial management of the Central Bank. On the other hand it would certainly be desirable to amend the Convergence Pact so as to allow a real coordination of budgetary and monetary policies.


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  • Samba Mamadou O. (1996), « Dévaluation du franc CFA, taux de change parallèle de la naira et compétitivité de l’économie du Niger face au Nigéria », Revue d’Economie du Développement, n° 4, December, p.95-120.
  • Shaw E.S. (1973), Financial Deepening in Economic Development, Oxford University Press, New York.
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  • Secrétariat du Comité monétaire de la zone franc, La zone franc, annual reports.
  • Tirole J. (2002), « La gouvernance des institutions internationales » in Jacquet P., Pisani-Ferry J. and L. Tubiana, Gouvernance mondiale, Paris, La Documentation Française, p.291-297.



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.


p. 295


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.


p. 298


See Table 2.


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).



Why increase the independence of the Central Bank of West African States? The answer can be sought in the monetary and institutional evolution of the West African Economic and Monetary Union. The advantage would be to increase confidence in the value of the currency and to guarantee the continuity of the economic and monetary integration of West Africa. The feasibility of the reform implies strengthening the collegiality of monetary decisions and the transparency of the management of the Central Bank. It is also necessary to improve the coordination of budgetary and monetary policies, with a view to a stronger and more regular growth of the economies of the Union.
JEL Classification : E58, O55, F33, F36.


  • Central Bank of West African States
  • monetary union
  • franc zone

Plan de l'article

  1. Introduction
  2. 1 - A little history
    1. 1.1 - The Africanisation of the BCEAO
    2. 1.2 - The creation of the Economic Union
    3. 1.3 - The pegging of the CFA franc to the euro
  3. 2 - The arguments for independence
    1. 2.1 - Independence of the BCEAO and credibility of its policy
      1. The credibility of the BCEAO, associated with the exchange regime of the WAEMU
      2. The lessons of the monetary evolution in WAMU
      3. The stakes of regional cooperation: effects of dilution of preferences and institutional creation
      4. The progressive strengthening of the monetary power of the BCEAO
    2. 2.2 - Independence of the BCEAO and continuity of economic integration
      1. The small size of the States making up the WAEMU
      2. Monetary union, factor of development of intra-regional exchanges
      3. Monetary union a prior condition to the realisation of customs union
  4. 3 - The requirements of independence
    1. 3.1 - How can the statutes of the BCEAO be modified so as to render its governance independent of the States?
      1. A clear mission attributed to the Central Bank
      2. Directing bodies of the Central Bank independent of the pressure of States
      3. A limit to the monetary financing of the States
    2. 3.2 - The counterweights of independence
      1. The collegiality of monetary policy decisions
      2. The transparency of the financial management of the Central Bank
      3. A new definition of relations with France?
      4. A good “policy mix”
  5. Conclusion

Pour citer cet article

Guillaumont Jeanneney Sylviane, « Independence of the Central Bank of West African States: An Expected Reform? », Revue d'économie du développement, 5/2006 (Vol. 14), p. 43-73.

DOI : 10.3917/edd.205.0043

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