Competitiveness and growth within the CFA franc zone: Does the switch to the Euro matter?

In this paper, we seek to analyze the impacts exerted by the substitution of the French franc for the euro on real and nominal effective exchange rates, competitiveness and growth within the CFA zone. Our findings show that, since the advent of the euro, the evolution of the real exchange rates and the competitiveness (measured by currency misalignments) have become increasingly dependent on nominal exchange rate movements and therefore on the evolution of the anchor currency. While the appreciation of the euro in the last decade did not translate into strong and generalized currency overvaluations—except in Central African Republic, Benin and Equatorial Guinea—it had however strongly reduced the extent of real undervaluations induced by the 1994 devaluation of the CFA franc. This has resulted in an increasingly negative effect exerted by real and nominal appreciations on growth rates of these countries since the switch to the euro.