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Submitted by Ali Zafar on
Thanks for the interesting post and paper. I would add one element that is peculiar to the CFA franc zone for explaining the shallowness of the financial sector. Essentially, the franc zone has had a fixed exchange rate peg in which countries have surrendered their monetary policy in the interest of stability. The operations accounts of these zones in the French treasury have been important elements. France has guaranteed the convertibility. For example, even when oil prices have been very high, the regional central bank in CEMAC has deposited money far beyond what was required into the Operations Account. While only 65 percent of reserves need to be there in Paris by statute, frequently more than 90 percent have been pooled, getting little interest (in both senses of the word). So the institutional features of the franc zone have in some way acted as agents of financial disintermediation along with the elements well described in your analysis. Overly conservative monetary policy can have its costs...