In a series of contributions dedicated to the monetary management of the BCEAO, and intended for a particular target, we argued (i) that the BCEAO is lagging behind the banks and the states in its refinancing policy since the banks hold government securities refinanced at the BCEAO and can only reduce this outstanding amount gradually or wean the states (ii) that Senegal and Côte d'Ivoire have come to the aid of the BCEAO and the banks by issuing eurobonds with the double result, on the one hand, of replenishing the foreign exchange reserves negatively impacted by the policy of indirect financing of excessive budget deficits, and on the other hand, of providing liquidity to the banks in view of the need to reduce the BCEAO refinancing volume (iii) that its policy was more Ivorian than regional in its management of the union's overall liquidity and finally (iv) that it had returned to a healthy hibernation on its instruments after an tivism dictated by its Ivorian and trade policy between 2016 and 2018 since its announced monetary policy instruments (interest rates and reserve requirements) have no links to free market developments on these instruments. These theses are confirmed by the analyzes of the IMF's latest WAEMU regional surveillance report, by the disproportionate outstanding amount of Côte d'Ivoire securities on the regional financial market, and by the behavior of interest rates on the market, facts documented in the September 2019 monetary policy report.

In such a context, our central bank will have to continue to refinance our banks at a level that corresponds to the pace of budgetary adjustment in the union, particularly in Côte d'Ivoire, with the risk of a crowding-out effect on the credit to the private sector and to other countries such as Senegal. Indeed, Côte d'Ivoire has a higher budget deficit than its regional and external financing capacity can support, which makes its high growth through public investment unsustainable. As a result, its level of public investment generates a deficit in its current account of the balance of payments that capital inflows from other countries in the union or outside are not sufficient to cover. The resulting balance of payments deficit affects the BCEAO's foreign exchange reserves and requires exceptional financing from the IMF and donors, while Côte d'Ivoire should no longer, like Senegal, have an IMF program with funding.

Côte d'Ivoire should therefore not only reduce its budget deficit well below the convergence criterion of 3% of the union's GDP, but also reduce its recourse to financing on the regional market to give space to other countries such as the Senegal. All the WAEMU countries, including Côte d'Ivoire, could at the same time reduce the financing in foreign currency of their public debt so as to reduce the external vulnerability of the union. This will also allow countries like Senegal to avoid cash flow tensions and the use of domestic arrears, letters of comfort to banks, or pending payments as an effective method of financing current-year budget expenditures to be paid with budget appropriations. years to come. Our public finances would thus be freed up more.

In a context where the states would finance themselves more on the regional market in FCFA to reduce the weight of their debt in foreign currencies, the union could nevertheless need foreign currency inflows with the corresponding liquidity in FCFA which came from the financing in foreign currencies of the states. This contribution will be beneficial for the foreign exchange reserves of the BCEAO and the liquidity of the banks and through them, the financing of the economy. To do this, the BCEAO could replace the states and issue securities on the international markets for its own account in order to fill this deficit in foreign currency and liquidity for the private sector. It could take the example of the Bank of Tunisia, which for years issued securities on the Japanese Samurai market in particular, sometimes for its own account in support of the private sector, other times on behalf of the Tunisian state. It did so recently with the guarantee of the Japanese state in view of the Tunisian political situation. The BCEAO statutes allow the same to be done.

To materialize this vision, we recommend that the BCEAO, in collaboration with the WAEMU Commission, develop a global public debt strategy for the union to determine the appropriate overall currency composition of this debt and the national variations. It will follow that it will have to manage its own balance sheet to provide the residual financing in foreign currencies necessary for the union through a presence on the international markets.

In this perspective, and by giving autonomy of objective to the BCEAO on the exchange rate and by freeing it from the Council of Ministers, the Heads of State would allow it to better manage the level of its foreign exchange reserves in this new role. A flexible exchange rate would also encourage more foreign investors to take an interest in our market in FCFA, ECO should we say. However, these investors will not be interested in our market if the secondary market for government securities is not active and liquid to allow them to easily enter and exit as needed.

Therefore, we conclude this contribution by reiterating to the BCEAO that the liquidity currently held by banks beyond their required reserves and which is in fact financed by the central bank is not liquidity potentially intended to private. The banks have used the unremunerated excess reserves that they held to finance the states and refinance these same amounts that they keep on deposit at the central bank. These deposits, through this mechanism, have become remunerated deposits that the BCEAO must consider as deposits held in a synthetic deposit facility that it did not have in its instruments, remuneration financed by the states. Since these deposits are beyond the required reserves, the BCEAO must issue BCEAO bonds to mop up this excess liquidity in order to have a grip on the interbank market interest rates that it wishes. This will make it possible to animate the interbank and money market, which will promote a secondary market for government securities. It will also result in a reduction in BCEAO's net profits, which should not worry him. Its policy should not be commercial but monetary and financial and the states should be ready to assume the possible consequences on the bank's capital. It would perhaps be wise, from this point of view, to change the statutes of the BCEAO so that its capital is held in proportion to the weight of the WAEMU states so that any liabilities are adequately distributed. A college of national governors with corresponding voting rights in central bank decisions would be the corollary.

Dr. Abdourahmane SARR

President CEFDEL