Do Pegged Currencies Support Growth? Insights from Mali’s Experience with the CFA Franc

This paper investigates the relationship between economic growth and exchange rate volatility in Mali, a member of the West African Economic and Monetary Union (WAEMU) with a fixed exchange rate regime by way of the CFA Franc (XOF) peg to the Euro (EUR). In accordance with the Mundell-Fleming model, Purchasing Power Parity (PPP) theory, and balance of payments-constrained growth, the study examines how deviations of the XOF/USD exchange rate—used as a proxy for EUR/USD changes—affect significant macroeconomic variables like GDP, inflation, exports, and imports. Based on annual time series data covering 1967 to 2023, the study uses the Autoregressive Distributed Lag (ARDL) model to examine short-run behavior and long-run equilibrium relationships. The findings reinforce the existence of cointegration between the variables and establish that exchange rate volatility has a major impact on Mali's macroeconomic performance. The fixed peg delivers nominal stability but is restrictive on policy independence and increases vulnerability to external shocks. The findings add novel insights, which are country-specific, to the general discourse on currency regimes in sub-Saharan Africa and provide policy lessons for increasing resilience and sustainable growth under limited monetary regimes. JEL : E31, F31, F33, F41, O55