Vol 8, No 2 (2020)

Bi-Directionality in FX Reserves and Domestic Exchange Rates in the CEMAC Region

Henri Kouam Tamto

Abstract

Foreign Exchange (FX) Reserves reduce the risk of a currency crisis. However, their composition does not reflect changes in trade and financial flows in the CEMAC region. Changes in the value of the domestic exchange rate cause FX reserves to rise or fall. This paper investigates the relationship between FX reserves and the Franc CFA (CFAF). It finds that during an upturn driven by increases in the prices of commodities, FX reserves tend to rise, while the prudential characteristics of reserves are more prevalent during a downturn. Changing the composition of reserves to reflect trade dynamics (invoicing channel) and financial flows will lessen the risk of a currency crisis and improve macroeconomic stability.

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Keywords

Foreign Exchange; Exchange Rates; CEMAC Region; trade dynamics.

Publication information

Volume 8, Issue 2
Year of Publication: 2020
ISSN: 1857 - 8721
Publisher: EDNOTERA

How to cite

Kouam Tamto, K. H.: Bi-Directionality in FX Reserves and Domestic Exchange Rates in the CEMAC Region, Vol 8, No. 2, 5-21. (2020)