An Interim Arrangement towards Monetary Unification in the West African Monetary Zone

The study seeks to establish the presence, or otherwise, of real exchange rate, demand and supply shocks synchronicity in the West African Monetary Zone (WAMZ) and to suggest alternative exchange rate arrangements, other than a monetary union, in case these shocks do not co-move. On the whole, the study finds that the countries experience asymmetric demand, supply and real exchange rate shocks leading to the conclusion that the planned monetary union objective must be put on hold until they achieve shocks co-movement. To this end, the study recommends that the WAMZ operates an exchange rate mechanism (ERM) with the euro as the anchor currency, in the intervening period, to help stabilise the macroeconomic environment since the euro performs better in explaining its business cycles than the United States dollar. This is in view of the fact that the WAMZ preferred the dollar as the anchor currency in its originally proposed ERM.