Getting a member country's economy back on track |
![]() |
Devalue the CFA Franc |
![]() As a member nation of the International Monetary Fund, you request help from the Fund in planning a devaluation of your currency. Mr. Schmidt and Ms. Chang are economists from the IMF who have come to advise you. They explain how it will work: Mr. Schmidt says, "Your country has had high inflation over the past few years. The cost in CFA francs to produce a can of tuna fish has doubled from about 85 CFA francs to around 170 CFA francs per can. But since the Europeans haven’t been having the same inflation as you, the price of tuna on international markets has stayed the same at about 2 French francs per can. That’s only 100 CFA francs. So right now your tuna exporters can only sell their fish abroad for a little over half the price it cost them to produce it. Ms. Chang chimes in, "Right now 50 CFA francs are worth one French franc." She says, "Devaluing the CFA franc means that the new value will be 100 CFA francs per 1 French franc. Now this doesn’t change local prices. But it will bring local costs back in line with international prices. If your tuna sells abroad for about 2 French francs per can, every can of tuna you sell in France after devaluation will bring you 200 CFA francs rather than 100 CFA francs as at present. That's 100 more CFA francs per can. That is enough to meet the local costs of production and make a profit." Mr. Schmidt says, "If you act soon, the IMF can offer your government a low-interest loan to provide the foreign exchange you need while the economy recovers." You agree with the IMF recommendation that the devaluation will help the economy. But you worry that this move will be unpopular politically because imported goods will become more expensive. Will you: |
![]() |
Devalue immediately, helping the economy but risking your chance of defeat in the next election? | Wait until after the election, then devalue the currency? | ![]() |