Country Report Central African Republic October 1998 Main report

Economy: EU confirms its support for CFA franc parity

On July 6th the European Union formally agreed that France is entitled to maintain the fixed CFA franc:French franc parity when the French currency enters European economic and monetary union (EMU) on January 1st. This will create a de facto fixed rate against all EMU member currencies and against the euro, which will eventually replace the national member currencies altogether. With the French franc:euro rate fixed at FFr6.6:Euro1, the CFA franc parity will be CFAfr660:Euro1. The EU's announcement was not unexpected, but it does at least remove the uncertainty caused when some German and British officials cast doubt on the prospects for the survival of the CFA franc fixed rate. However, the EU agreement will not end uncertainty over the long-term sustainability of the fixed rate, especially if the euro develops into a de facto reserve currency and sees its value driven up, dragging the CFA franc to uncompetitive levels.

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