Devaluation and revaluation simply shift the fixed CFA-euro parity

Evidence

When a country decides to fix the exchange rate of its currency vis-à-vis another currency, we are in the presence of a fixed exchange rate regime. This is the case of the countries of the franc zone vis-à-vis the eurozone. In this type of exchange rate regime, we speak of devaluation when the country that pegs its currency decides to shift downward the exchange rate parity with respect to the anchor currency. For example, if we were to go from a fixed parity of 1 euro = 655.957 CFA francs to a fixed rate of 1 euro = 1,000 CFA, we would be in the presence of a devaluation. Now more CFA francs are needed to get 1 euro: the purchasing power of the CFA franc in euros decreases, while the purchasing power of the euro in CFA francs increases. Conversely, if we were to move from a fixed parity of 1 euro = 655.957 CFA francs to a fixed parity 1 euro = 300 CFA francs, we would be in the presence of a revaluation. Now fewer francs are required to get 1 euro: the purchasing power of the euro in CFA francs decreases while the purchasing power of the CFA franc in euros increases. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 122

Categorization

• DEFINE: Concrete worked examples clarify exactly what devaluation and revaluation do to purchasing power.
• XREF: connects to: Fixed exchange rates force austerity when competitiveness declines; CFA franc parity changed only once since 1948 — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 294; CFA franc value is set politically, insulated from market economic conditions — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 97 (+6 more)

Related

• CFA franc parity changed only once since 1948 (similarity 0.90)
• CFA franc parity was frozen at 50 per French franc from 1958 to 1994 (similarity 0.88)
• CFA ‘stability’ masks currency fluctuation against dollar and pound (similarity 0.87)
• Fixed exchange rates force austerity when competitiveness declines (similarity 0.87)
• The devaluation doubled France’s financial capacity in CFA francs overnight. (similarity 0.87)
• Euro appreciation deteriorates franc zone trade balances (similarity 0.87)
• The CFA franc’s parity was set without regard for local economic realities (similarity 0.87)
• The CFA franc’s fixed peg forced colonies to absorb French devaluations helplessly (similarity 0.86)
• The CFA franc was deliberately overvalued against the metropolitan franc. (similarity 0.85)
• The 1994 devaluation capped decades of Paris refusing to adjust the overvalued CFA franc (similarity 0.85)
• CFA franc value is set politically, insulated from market economic conditions (similarity 0.85)
• Paris imposed a currency overvalued against the metropolitan franc without economic justification. (similarity 0.84)
• A fixed exchange rate regime forces member countries to resort to internal devaluation (similarity 0.84)
• The 1994 devaluation tripled French financial advantages while shifting blame to the IMF. (similarity 0.83)
• Fixed and floating exchange rates operate by opposite logics (similarity 0.83)

Broader Connections

• CFA ‘stability’ masks currency fluctuation against dollar and pound #complicates (0.70) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 133
• Euro appreciation deteriorates franc zone trade balances #expands (0.60) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 299
• A fixed exchange rate regime forces member countries to resort to internal devaluation #expands (0.55) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 125
• A single currency without fiscal federalism increases divergence between member states #corroborates (0.40) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 347