Looking at today’s trade integration, mobility of the workforce, currency misalignment, debt sustainability and buffers of foreign exchange reserves in the zone (Optimum Currency Area criteria), we find that:
- The CEMAC area is under pressure. Our model shows intra-zone trade is -USD200mn below what common borders, language and currency should provide for. There is evidence of currency overvaluation in the region (mainly in CAR, Gabon and The Republic of the Congo) as a result of lower oil prices. This has led to an increase of public debt and a fall in the foreign reserves-to-M2 ratio below the 20% threshold in Congo Rep. and Chad. In spite of these fragilities, a breakup or devaluation in the next five years is unlikely. If oil prices were to fall to USD 30/bl for long, the area would not be able to avoid a devaluation, but a breakup will remain unlikely. CFA Franc membership is an institutional fix that grants price stability to its members. Any exit would be a political choice, not an economic one.
- The WAEMU area is under control. Public debt has increased but remained manageable, the CFA Franc parity does not look overvalued and the level of reserves is adequate. However, members are not making the most of the monetary union, since intra-zone trade flows look below what a monetary union would grant in five out of eight countries. The ECOWAS trade agreement and the ECO currency project with neighboring Anglophone countries like Ghana and Nigeria are game-changers. Yet, the CFA Franc may well celebrate its 100th anniversary before the ECO replaces it.