From the CFA Franc to the Eco : Econometric Analysis of the Relationship Between Monetary Regimes, Competitiveness, and Growth in the UEMOA–ECOWAS Area

Abstract

This study, from the perspective of development economics, examines the monetary trajectory of West Africa, characterized by the coexistence of the CFA franc-pegged to the euro since 1999 at the fixed rate of 655.957 FCFA per 1 euro-and the ECOWAS single-currency project, the Eco, whose launch, initially announced for 2020, has been repeatedly postponed to an uncertain date beyond 2027. In light of recurring criticisms regarding the loss of monetary sovereignty, the rigidity of the fixed exchange-rate regime, and insufficient real economic convergence among member countries, the central question addressed is the following: does the current exchange-rate regime in the CFA zone promote, or instead constrain, economic growth and external competitiveness in the UEMOA countries, and is this relationship stable over time?

Three hypotheses are tested: the real effective exchange rate has a long-term relationship with growth and trade openness; short-term adjustment toward the long-run equilibrium is significant but slow; and the weak synchronization of shocks limits the optimality of the monetary union. The methodology relies on annual time-series analysis (1994–2023): unit root tests (Augmented Dickey-Fuller), Engle–Granger cointegration tests, and error-correction modeling. The results show that the variables considered (real effective exchange rate, inflation, trade openness, and money supply) are integrated of order one; that a cointegration relationship emerges only at the 10% significance threshold; and that the strength of the adjustment back toward the long-run equilibrium, although consistent with the expected sign, remains statistically weak.

These findings corroborate the literature suggesting that UEMOA is not yet a monetary optimal area in the sense of Mundell, while also raising questions about the Eco project’s ability to resolve, through a change in monetary denomination alone, the structural weaknesses of West African real convergence. The article concludes that any monetary reform should be conditioned upon a deepening of regional trade and financial integration.