Franc-zone central banks must restrict domestic credit to defend the fixed euro parity

Evidence

This obligation derives from the fact that in the countries of the franc zone, which have poorly diversified productive structures, bank credit is generally used to pay for imports. Therefore, if a company obtains a loan, it is likely to use it to purchase equipment produced elsewhere. However, these purchases involve the use of foreign currency and consequently a decline in foreign exchange reserves. In order to avoid a lasting drop in the level of their foreign assets, which would jeopardise the fixed parity, central banks must therefore limit the growth of domestic credit (the volume of bank loans made available to governments, businesses and households). … Inflation rates in the WAEMU and CEMAC zones are generally within the limits tolerated in the eurozone: less than 3 per cent. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 131

Categorization

• DEFINE: Explains the structural mechanism by which the fixed peg forces credit restraint on the zone.
• XREF: connects to: Gold standard currencies had fixed parities and central banks limited issuance to gold reserves — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 64; A fixed exchange rate regime forces member countries to resort to internal devaluation — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 125; The CFA central banks subordinate domestic credit to defending the euro parity. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 308 (+6 more)

Related

• The CFA central banks subordinate domestic credit to defending the euro parity. (similarity 0.91)
• Fixed parity and credit compression make France the zone’s privileged creditor (similarity 0.88)
• The CFA franc structurally denied credit to economic actors outside colonial accumulation (similarity 0.86)
• Franc-zone bank credit allocation suppressed African firms competing with French companies (similarity 0.86)
• Eurozone membership merged CFA extraction with neoliberal austerity, worsening African prospects. (similarity 0.85)
• The CFA franc’s parity was set without regard for local economic realities (similarity 0.84)
• Euro pegging diverts trade toward France and blocks local industrialization. (similarity 0.84)
• The French Treasury holds accounts in each franc zone central bank (similarity 0.84)
• African franc-zone reserves effectively grant France subsidized loans below market rates. (similarity 0.83)
• The CFA central banks violate their own strict controls when serving French interests. (similarity 0.83)
• The CFA franc was a political choice that deprived non-adapting African actors of credit (similarity 0.83)
• The CFA franc was a colonial instrument depriving African actors of credit. (similarity 0.82)
• Euro appreciation deteriorates franc zone trade balances (similarity 0.82)
• Fixed exchange rates force austerity when competitiveness declines (similarity 0.82)
• France’s guarantee is backed by pooled African reserves and French central bank seats (similarity 0.81)

Broader Connections

• The CFA central banks subordinate domestic credit to defending the euro parity. #corroborates (0.95) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 308
• Fixed parity and credit compression make France the zone’s privileged creditor #expands (0.80) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 252
• Franc-zone bank credit allocation suppressed African firms competing with French companies #expands (0.70) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 128
• France’s strong-franc policy worsened CFA countries’ competitiveness #corroborates (0.55)
• Euro appreciation deteriorates franc zone trade balances #corroborates (0.50) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 299
• CFA franc value is set politically, insulated from market economic conditions #qualifies (0.50) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 97