The Question of ECO Stowage: A Response from the Study of the Misalignment of the CFA Franc in WAEMU

The objective of our work is to provide an answer to the question of whether or not to link ECO to EURO. For this, we assume that CFA franc is constantly misaligned. Based on WAEMU’s equation of the real exchange rate estimated, we obtain the series of the real exchange rate of balance and the level of misalignment through the HP approach. We use annual WAEMU data for the period 1980-2017 from the World Bank, the International Monetary Fund and the Central Bank of West African States. This result questions the effectiveness of a fixed stowage of the new currency, the ECO to the EURO. However, before the adoption of this new currency, the evaluation of the position of exchange reserves in ECOWAS is necessary. In addition, strengthening productive capacity and better coordination of macroeconomic policies within the ECOWAS economies is highly recommended. It would also be wise to reconsider the budgetary management of ECOWAS states member in order to achieving more convergence.