Exchange rates and exchange rate regimes in Sub-Saharan Africa (SSA): lessons from the experience of the CFA franc zone.

Summary In the early 2000s, African countries embarked on regional currency union projects with the aim of creating a single currency for the entire continent by 2028. The objective of this thesis is to analyze the merits of such a strategy, based in particular on the lessons that can be drawn from the experience of the countries of the CFA zone. More precisely, we analyze the consequences of the choice of these countries to peg their common currencies to an external currency and we seek to know whether or not it is desirable to transpose the experience of these countries to other regions in Africa. In the first part, we revisit the optimality criteria of the CFA and WAMZ zones by focusing on the dynamics of real exchange rates. We highlight interesting similarities between the WAEMU countries, Ghana, The Gambia and Sierra Leone on the one hand, and between Nigeria and CEMAC on the other, indicating that these two groups of countries could each share a common currency. We also suggest that the optimality criteria of the theory of optimal currency areas are not necessarily relevant. Thus, we show that, while not optimal, the CFA zone, by facilitating internal and external balances compared to other Sub-Saharan African (SSA) countries, is a sustainable currency zone.In a second part, we focus on the economic implications of the exchange rate regime of the CFA zone countries, which is similar to what we call a "double peg" (i.e., membership in a monetary union and pegging of the common currency). We show that the real appreciation of the CFA franc over the past decade is explained by the peg to a euro that has appreciated continuously since 2001. This has led to a reduction in the gains in competitiveness achieved following the 1994 devaluation and to an increase in the negative effects of the exchange rate appreciation on the growth of these countries. Finally, by analyzing the differences in economic performance between the different exchange rate regimes in SSA, we suggest that a monetary union regime without an external currency peg might be a better option for these countries.