Central African Economic and Monetary Community is a currency union whose exchange rate has been fixed to the French franc, with a major devaluation in 1994, and then, from 1999, to the euro. While the scope for monetary policy is limited, and banking conditions were for many years imperfectly harmonised between members, its operation has evolved slowly and incompletely from direct towards indirect monetary instruments, and towards a more integrated currency union.
| Years | Targets and attainment | Classification |
| 1974-2017 | under arrangements inherited (with some modifications in agreements of late 1973) from colonial period, the Central African Monetary Area, then from 1994 Central African Economic and Monetary Community (Communauté Economique et Monétaire de l’Afrique Centrale, CEMAC), covers Cameroon, Central African Republic, Chad, Congo (Republic of) and Gabon, plus from 1985 Equatorial Guinea; central bank, Banque des Etats de l’Afrique Centrale (BEAC), originally operated from France but 1977 relocated to Yaounde with African governor; the Coopération financière en Afrique centrale (CFA) franc is fixed to French franc until 1998 then from 1999 to euro; peg is supported by operations account with French Treasury, in which 65% of central bank’s forex reserves (50% from 2009) must be held: French Treasury pays interest on those balances, guarantees convertibility of CFA franc to SDR via unlimited overdraft facility, and retains minority representation on BEAC board; country-specific banknotes are issued but they are legal tender throughout the union; commitment to exchange rate peg plus high (but not complete) capital mobility between union and France mean little scope for independent monetary policy; lending to governments is limited to 20% of fiscal receipts of previous year; central bank sets overall and national credit and refinancing targets, split between credit to government and rest of economy, with emphasis on quality of loans, and national monetary committees decide allocation within each country; if BEAC’s ratio of gross foreign assets to sight liabilities falls below 20% for three consecutive months or if operations account goes negative, BEAC is required to tighten policy, which could mean both raising discount rate and reducing credit ceilings, but interest rates infrequently adjusted; from 1990 attempts to reduce previous divergences between banking conditions in different countries; January 1994, after long-term decline in terms of trade and despite sustained but ultimately unsuccessful efforts at internal adjustment, devaluation of 50% (in foreign currency terms), followed by stabilisation programmes in each country and increased focus on regional integration; mid-1994, in move towards indirect monetary instruments, country-specific credit policies replaced by weekly auctions of finance for banks (initially at country level) and interbank market; by late 1990s main instruments are weekly injections of liquidity at fixed rates, with both quantities and prices set by BEAC, but banking conditions continue to vary between countries, interbank market is largely inactive and BEAC’s control of credit to governments (within the 20% ceiling) is limited; 1999 peg switched to euro with no change to arrangements with French Treasury; efforts to raise fiscal convergence, hindered by lack of stabilisation or wealth funds for those CEMAC countries which are oil producers, and by governments’ use of commercial bank accounts; reserve requirements from late 2001, in part reflecting lack of other policies to absorb excess liquidity, differentiated between countries from 2002; issues of bank weakness and supervision, regional supervisory agency (originally set up 1990) becomes more active; 2002 plan for regional securities market with issues of national treasury bills to replace credit to governments, but postponed 2003; reserve requirements become main active instrument; 2007 more use of negative auctions but monetary policy originally designed for era of fiscal deficits and low forex reserves poorly suited to rising reserves (with 5 out of 6 CEMAC members being oil-exporters), fiscal surpluses and excess liquidity in 2000s; issue of some governments holding own forex reserves separately rather than through BEAC operations account; 2009 discovery of fraud at Paris office of BEAC leads to revised governance procedures and new Governor; 2011 government securities (primary) market finally opened, but interbank money market is largely inactive, monetary instruments are limited and there is persistent excess liquidity; 2013-14 disruption from crisis in Central African Republic and later from security threats in Chad; 2014 oil price fall severely affects most member countries; 2015 new convergence framework adopted; in accommodating monetary policy BEAC reverses policy of gradually eliminating direct loans to governments; late 2016 agreement on need for strong adjustment strategy, regional and national, plus active liquidity management framework from end-2017; mid-2017 reserve requirements harmonised (as between countries), planned reforms to monetary instruments to improve transmission | augmented exchange rate fix AERF |
Selected IMF references: A Review of the CFA Franc Arrangements, 1990, especially pp3-12, 18-21, 44-51; Common Policy Issues of the CFA Franc Countries, 1994, pp4-17, 22-5, 70-1; CFA Franc Countries – Recent Adjustment Experience and Policy Issues, 1995, pp2-4, 15-16, 27-8, 132-5, 137-9; RDRPI 1999 pp5, 13-14; RDRPI 2001 pp15-17; RDRPI 2002 pp4, 9-12; RDRPI 2003 pp10, 14-16; SR 2006 pp14-15; SI 2007 pp6-16; SR 2007 pp8-10; SI 2008 pp21-8; SR 2009 pp8-10, 21-14; SR 2011 pp15-16; SR2013 pp14-17; SR 2014 pp14-17; SR 2015 pp12-13; SR 2016 pp11-15; SR June 2017 pp6-8, 12-15; SR November 2017 pp9-11, 15-16, 42-4; Program Design in Currency Unions – Policy Frameworks of the West African and Central African Monetary Unions, 2018, pp4-7.
Other references: Boughton (1991); Masson and Pattillo (2005, pp15-16, 21-4, 46-8); Wolf et al. (2008, p46).
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Monetary Policy Frameworks 