Fixed Exchange Rates and the Autonomy of Monetary Policy : The Franc Zone Case

Author/Editor:

Romain M Veyrune

Publication Date:

February 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper compares monetary policy of currency boards with that of the franc zone during the period 1956-2005. It concludes that monetary policy in the zone was more autonomous than under a currency board, even though both systems faced the same exchange rate constraint. So far, the contingency line provided by the French treasury and capital controls have allowed the zone to combine a fixed exchange rate and a relatively autonomous monetary policy. Financial development and zone enlargement would challenge this relative autonomy for two reasons: (1) the potential cost to the French treasury would increase; and (2) residents would potentially be able to avoid capital controls. For the zone to maintain its fixed exchange rate, close targeting of foreign reserves would become important.

Series:

Working Paper No. 07/34

Subject:

English

Publication Date:

February 1, 2007

ISBN/ISSN:

9781451865981/1018-5941

Stock No:

WPIEA2007034

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

23

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