Reserve Pooling in the Eastern Caribbean Currency Union and the CFA Franc Zone: A Comparative Analysis

IMF Working Papers, August 1, 2001

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Canonical URL: Reserve Pooling in the Eastern Caribbean Currency Union and the CFA Franc Zone: A Comparative Analysis

The paper compares the gains from the pooling of reserves, and hence reserve variability, in the Eastern Caribbean Currency Union (ECCU) and the CFA franc zone.
Primary empirical findings:
- Countries within the ECCU area have achieved greater balance of payments protection than the CFA zone countries from the pooling of reserves.
- Unanticipated changes in the terms of trade lowered reserves in the CFA relative to the ECCU.
- The differential impact of terms of trade shocks may reflect a greater reliance on primary commodities in the CFA compared with services in the ECCU.

Regional coverage:
- Eastern Caribbean Currency Union (ECCU)
- CFA franc zone
Economic topics analyzed:
- Reserve pooling and reserve variability
- Balance of payments protection
- Terms of trade shocks
- Sectoral reliance: primary commodities (CFA) versus services (ECCU)

Subjects: Central banks, Currencies, Economic integration, International trade, Monetary unions, Reserve assets, Reserve positions, Reserves management, Terms of trade, Treasury bills and bonds
Keywords: average cost, balance of payments, Caribbean, CFA franc zone, coverage ratios ECCU, ECCU, ECCU countries reserve, ECCU country, foreign exchange, hypothetical reserves ECCU, imputed reserve, Monetary unions, opportunity cost, Reserve assets, reserve management policy, reserve pooling, Reserve positions, reserve variability, reserve variation, Reserves management, reserves of the ECCU, Terms of trade, terms of trade shock, variability benefit, West Africa, WP