Should We Fear a Crisis of the CFA Franc?

Abstract

Since the decline in world oil prices that began in July 2014, the macroeconomic fundamentals of the CEMAC countries have deteriorated, notably the balance of payments. The degradation of the current balances is likely to extend downwards; raising concerns about the stability of the exchange rate. Based on interrupted time series modeling, the analysis shows that the oil shock immediately led to a decline in CEMAC's net foreign assets, as well as their trend. The model predicts a continued degradation of these foreign assets if oil prices remain low. As a result, there is a risk of the fixed exchange rate of the CFA franc of Central Africa becoming unsustainable. This situation can also lead to currency instability if economic policies do not lead to a return to economic growth.