France’s strong-franc policy transmitted its appreciation shock to the CFA zone

Evidence

The socialist government of François Mitterrand, elected in 1981, had effectively adopted a strategy of ‘competitive disinflation’: having failed in his attempt to revive the French economy, he wanted to achieve greater price competitiveness by reducing France’s inflationary gap vis-à-vis competing countries. This plan included the pegging of the French franc to the German mark, a strong and credible currency in the eyes of financial markets. The French franc appreciated as a result, causing the CFA francs to strongly appreciate as well. The result was a significant deterioration in the competitiveness of the African countries of the franc zone. The policy of the ‘strong franc’ penalised them all the more as their main African trading partners, Nigeria and Ghana, meanwhile saw their currencies depreciate. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 206

Categorization

• XREF: connects to: The CFA franc was deliberately overvalued against the metropolitan franc.; The 1994 devaluation tripled French financial advantages while shifting blame to the IMF.; France’s own anti-inflation policies against the mark caused the CFA overvaluation that forced crisis. (+10 more)

Related

• France’s strong-franc policy worsened CFA countries’ competitiveness (similarity 0.95)
• The 1939 franc zone was designed as a defensive shield for France’s economy (similarity 0.93)
• France’s own anti-inflation policies against the mark caused the CFA overvaluation that forced crisis. (similarity 0.92)
• The CFA franc’s fixed peg forced colonies to absorb French devaluations helplessly (similarity 0.89)
• The 1994 devaluation capped decades of Paris refusing to adjust the overvalued CFA franc (similarity 0.88)
• Euro appreciation deteriorates franc zone trade balances (similarity 0.88)
• A strong CFA franc forced colonial trade to flow through metropole markets. (similarity 0.86)
• An overvalued CFA franc penalised African exports while favouring imports from France (similarity 0.86)
• The same strong euro that hurts France devastates African export competitiveness (similarity 0.86)
• The CFA franc was deliberately overvalued against the metropolitan franc. (similarity 0.85)
• A strong euro penalizes French exports far more than German ones (similarity 0.84)
• Rising interest rates and falling commodity prices triggered the franc zone debt crisis (similarity 0.84)
• An overvalued CFA franc was engineered to reorient colonial trade toward France (similarity 0.84)
• The 1994 devaluation tripled French financial advantages while shifting blame to the IMF. (similarity 0.84)
• Euro pegging diverts trade toward France and blocks local industrialization. (similarity 0.84)

Broader Connections

• Euro appreciation deteriorates franc zone trade balances #expands (0.60) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 299