One Money to Two Monies? Monetary Policy in the CFA Franc Zone, 1968-1993

This paper investigates the monetary policy implications of the CFA franc zone from the viewpoint of the stability of money demand during the period prior to the 50% devaluation of 1994 and the imposition of restrictions on the convertibility of the two constituent currencies in 1993. By estimating the static and dynamic money demand functions, money demand was found to be structurally more stable for the CFA franc zone as a whole than either for any of the constituent currency unions or, as expected, for any of the individual countries. This means that, prior to 1994, the CFA franc zone could be considered as a single monetary area despite the existence of two currency unions.