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<p>Can a fixed exchange rate regime deliver macroeconomic stability without compromising policy flexibility and growth? This paper investigates this question using Mali’s experience with the CFA franc (XOF), a euro-pegged currency in a US Dollar-dominated trade environment, with annual data from 1967 to 2023, within an ARDL-ECM framework. The analysis reveals a structural paradox: while the peg stabilizes inflation, it amplifies the country’s exposure to external shocks and limits monetary policy autonomy. USD/XOF volatility has a significant short-run dampening effect on GDP, with partial long-run adjustment. In a paradox, growth is positively correlated with inflation, indicative of a liquidity-driven stimulus effect in the case of tight monetary conditions. These dynamics stress the limits of nominal discipline in structurally dependent economies, as those using the CFA Franc. Drawing on recent empirical studies (2024–2025), the paper calls for a recalibration of Mali’s macroeconomic strategy: one that prioritizes fiscal agility and policy freedom, export diversification, and climate-sensitive investments to mitigate volatility and enhance resilience. The results offer timely insights for WAEMU policymakers and development partners navigating the trade-offs of fixed exchange rate regimes in a multipolar financial system.</p>

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Do pegged currencies support growth? Insights from mali’s experience with the CFA Franc

  • 期刊论文

  • 发表日期：

    2025年11月11日

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  • Boubacar Amadou Cisse,
  • Tahirou Tangara,
  • Boubacar Mounkoro,
  • Abdoulaye Arama,
  • Ahmed Baba Singare,
  • Moussa Diallo

摘要

Can a fixed exchange rate regime deliver macroeconomic stability without compromising policy flexibility and growth? This paper investigates this question using Mali’s experience with the CFA franc (XOF), a euro-pegged currency in a US Dollar-dominated trade environment, with annual data from 1967 to 2023, within an ARDL-ECM framework. The analysis reveals a structural paradox: while the peg stabilizes inflation, it amplifies the country’s exposure to external shocks and limits monetary policy autonomy. USD/XOF volatility has a significant short-run dampening effect on GDP, with partial long-run adjustment. In a paradox, growth is positively correlated with inflation, indicative of a liquidity-driven stimulus effect in the case of tight monetary conditions. These dynamics stress the limits of nominal discipline in structurally dependent economies, as those using the CFA Franc. Drawing on recent empirical studies (2024–2025), the paper calls for a recalibration of Mali’s macroeconomic strategy: one that prioritizes fiscal agility and policy freedom, export diversification, and climate-sensitive investments to mitigate volatility and enhance resilience. The results offer timely insights for WAEMU policymakers and development partners navigating the trade-offs of fixed exchange rate regimes in a multipolar financial system.