Monetary Union in West Africa: An Agency of Restraint for Fiscal Policies

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International Monetary Fund, Mar 1, 2001 - Business & Economics - 33 pages
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Could a West African monetary union (either of the non-CFA countries, or all ECOWAS members) be an effective "agency of restraint" on fiscal policies? We discuss how monetary union could affect fiscal discipline and the arguments for explicit fiscal restraints considered in the European Monetary Union literature, and their applicability to West Africa. The empirical evidence, EMU literature, and CFA experience suggest that monetary union could create the temptation for fiscal profligacy through prospects of a bailout, or costs diluted through the membership. Thus, a West African monetary union could promote fiscal discipline only if the hands of the fiscal authorities are also tied by a strong set of fiscal restraints.
 

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Contents

I Introduction
IIBackground on Proposed Monetary Union in West Africa
Tables
i
Figures
ii
III A Comparison of the Economies in the Euro Area and ECOWAS
iii
IV Monetary Union and Fiscal Discipline
15
V Empirical Evidence on Monetary Unions and Fiscal Discipline
21
VI Implementing Monetary Union in West Africa Convergence Criteria
26
VII Conc1usion
30
References
31
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