The Development Cost of Maintaining Price and Economic Stability in Central and West African CFA Franc Zone

s The chapter traces the evolution of the CFA franc and the special arrangements between franc zone countries and France, including the 1999 Euro of the European Union and the origin of the French banking system in the African colonies. It ascertains factors that have inhibited economic growth to find ways of addressing those factors. It utilizes literature review and tables based on data drawn from BCEAO, World Bank, WTO, CEMAC, COBAC, and UEMOA. Hence, the chapter examines the central factors, including institutional rigidity, foreign reserve restrictions, lack of monetary policy, and exchange rate policy, that have negatively affected the economic growth and development in the CFA franc zone countries. It demonstrates that arrangements superficially have appeared to provide some advantages. Still, the institutional financial features embedded in the arrangements have hindered the more rapid and sustained growth in the CFA franc zone economies. A vital component of the financial system is the banking system which has been fundamentally and predominantly French-based. Furthermore, the chapter analyses the factors that have affected the different aspects of the economies of CFA franc countries and limited the region to producing and exporting mainly raw materials. Despite the longevity of the CFA franc arrangement, the zone remains a producer of raw materials with limited financial opportunities for the development of the private sector and financing economic activities. Accordingly, the chapter suggests ways in which the region can carry out structural transformation with changes in the production structure of these economies, diversify the economies and promote regional trade. As important as they are, these changes must come about with total monetary and financial systems changes.