The debate on whether member countries of the East African Community (EAC) need a single currency could be settled this year, leaving the bloc's five countries with a mission to implement the idea.
Sunday Times has learnt that the countries' High Level Task Force negotiating a protocol to establish the East African Monetary Union might soon consult the Sectorial Council on East African Monetary Union to seek advice on how to fine-tune a monetary union protocol and a ten-year roadmap to establish the union.
According to the chief negotiator for Rwanda, Dr. Thomas Kigabo, the taskforce could use the next two months to consult the Sectoral Council on the topic.
"We have one position as five countries. Already Heads of States want this (monetary union) to happen," he said in an interview on Wednesday.
Dr. Kigabo, who is also the chief economist at Rwanda's central bank, the national bank of Rwanda, acknowledged that the talks towards establishing the monetary union are at an advanced stage but warned that it will take a few more steps before the bloc can finally use a single currency.
"It's like building a house, you first need the foundation and then the walls before you can put on the roof and finishing touches to be able to use the house," the economist says.
The draft of the monetary union protocol remains confidential but a communiqué by Heads of States from their previous summit in Nairobi last November revealed that it already contained 77 articles which had been fully negotiated. The summit had acknowledged that there still remained "outstanding matters on the areas of macroeconomic framework, legal, and institutional framework" which needed guidance from the Sectoral cCouncil.
Among other experts, the sectoral council is made up of central bank governors, ministers of finance, and ministers in charge of EAC affairs from all the five member countries.
Though Dr. Kigabo couldn't reveal the major contents of the protocol, he confirmed that it had recommended the formation of a regional central bank that will be in charge of controlling regional financial institutions.
Independent experts have also recommended that the bloc will need to have a regional statistics centre among other institutions that will be needed to inform the monetary union.
The signature of the East African monetary union protocol will officially mark the entry of member countries into the union.
Dr. Kigabo said that if both the high level task force and the sectoral council agree on the final draft of the protocol, EAC heads of states would sign it at their next annual summit which will take place towards the end of this year.
Under a monetary union, countries share a common currency or decide to harmonise their exchange rates in order to keep the value of their currency at a certain level.
One of the main goals of forming a currency union is to synchronize and manage each country's monetary policy. One reason why countries form the union is to lower the transaction costs of cross-border trade.
The most important monetary union in the world remains the Economic and Monetary Union of the European Union which was launched in 1999 with the Euro as the currency used by all the member countries of the European Union who joined the monetary union and are therefore called members of the Eurozone.
Several other monetary unions in other regions of the world have also been proposed, including the one for Economic and Monetary Community of Central Africa (CEMAC), Southern African Development Community (SADC), the Arab League, and the Union of South American Nations (UNASUR).
Advantages of a monetary union
The use of a common currency eliminates the currency exchange fees from the cost of doing business between countries. Companies in the same region may be able to quickly compare prices with their competitors, which may encourage competition and may result in lower prices for consumers.
For example, proponents of the European Monetary Union say it promotes stability and efficiency in the Eurozone whereby the use of the same currency is expected to stimulate economic growth and may reduce the unemployment rates in the participating member states.
Criticisms of the monetary union
Concerns about the use of a single currency center on the loss of national sovereignty for each of the individual participating states. Some even fear that the participating states may not be able to pull out of a national economic crisis or reduce their poverty without the ability to control their own currency and volume of exports.
Some in the Eurozone worry that the participating European states will be forced to give tax breaks to compete with each other and that companies may have to lower wages for their employees and to lower prices on goods that they export.
Critics of the European Monetary Union are also skeptical about the idea that the system reduces unemployment among member states because workers don't necessarily move around the countries since their cultural differences remain a limitation.
Some countries, like the United Kingdom, are also afraid of joining the Eurozone because it may pull their country down to the economic equivalent of the least wealthy of the bloc or inherit some of their economic problems.
What do experts make of the idea of a single currency in the EAC?
Most analysts agree that the bloc will need to have a single currency, but they still warn that some conditions will need to be improved before it can be in use.
Prof. Josephat Bosire who teaches finance and investment at Mount Kenya University's campus in Kigali, predicts that the single currency will boost employment in the region because businesses will think in terms of a bigger market and the job creation ability may double.
He also says the bloc will be able to attract more foreign investors who will easily target it as a single market using a single currency.
The professor says the currency is also likely to help the countries in the bloc control their unequal inflation levels.
But he warns that the bloc needs to initiate a few changes before it can adopt a single currency and he proposes waiting for five years before using it.
"It's not suitable at this time. We aren't ready yet because there are things that we need to prepare before we have a monetary union. Politically we are divided. We need a political union first so that we are all connected. We also need a thorough mindset change so that we can see each other as one regional community rather than individual different countries that happen to be in the same region," he says.
The professor says that people seeing themselves as members of the same community will be helpful for their survival because using a single currency is likely to favour those regions that are wealthier while the less privileged may not easily grow as their ability to export may be challenged by other members of the common market.
"They may never grow or they may grow at a very slow pace," Bosire says.
Another prominent economist in the region, Rwanda's former Minister of Finance and Economic Planning, Prof Manasseh Nshuti, has constantly warned that the bloc is not yet ready for a single currency because member countries are still receiving foreign aid which creates more economic imbalances.
"It's a good idea whose time has not yet come due to the environment we are in. We have to be economically independent otherwise the donors will control the currency," Nshuti told The New Times last September.
"We are all agro-countries, we are not industrialized, meaning that it's difficult to control the inflation, especially the imported inflation on oil and other products," he added.
As for Rwandan businesswoman Janet Nkubana, it would make perfect sense to have a single currency in the bloc because it would ease transactions and save money that has been disappearing in the exchange process.
"Everything will be simpler with the single currency," she said. "We need it soon because we are talking a lot about integration and we do a lot of business with East Africa."