10 January 2014

East Africa: Monetary Union - Experts to Discuss the Way Forward

Photo: EAC
Residents of East Africa to travel and use their local currencies within the region.

After the signing of the Monetary Union under the East African Community (EAC), experts will now meet to discuss the next step towards full implementation of the protocol that paves the way for a regional single currency.

During their summit in Kampala in November, last year, Heads of State from the five partner countries signed the protocol that is envisaged to be implemented for the next 10 years before the single currency goes into circulation.

In an interview on Wednesday, Nathan Gashayija, the director of economic and productive sectors in the Ministry of EAC Affairs, said the experts' first meeting is scheduled for the end of month in Arusha, Tanzania.

"There are various issues to be discussed, including fiscal convergence monetary framework and other broader ideas like public finance management, statistics and others that are supposed to guide the operationalisation of the protocol," he said.

The Monetary Union is the third stage of the EAC integration process after the Customs Union and Common Market protocols, whose implementation deadline is next year.

Political federation, under which the region is envisaged to have one federal government, will be the last protocol to realise the full integration, according to the EAC Treaty.

The single currency is expected to enhance intra-EAC trade by eliminating exchange rate volatility, reducing transaction costs and facilitating capital flows within the region, among other economic benefits.

Currency implementation:

During the next 10 years, the bloc will have to set up various institutions that will help in implementation of the EAC currency.

The institutions include the East African Monetary Institute, East African Bureau of Statistics, East African Surveillance, Compliance and Enforcement Commission (to be responsible for surveillance, compliance and enforcement), and East African Financial Services Commission.

IMF advice:

During her visit to Kenya this week, International Monetary Fund chief Christine Lagarde urged EAC countries not to rush into the implementation of the Monetary Union advising it was imperative to first address some issues such as trade barriers.

"As a member of the Monetary Union of Europe, I have to tell you that it's an exciting ambitious project, but one where, as Aristotle would put it, hasten slowly. Don't rush," she told a forum of business leaders in Nairobi on Monday.

"Make sure you learn from our mistakes and that the East African Monetary Union can even teach the Europeans how to do it right; there are multiple experiences, whether it is European Monetary Union, the Caribbean Union, the West African Union and all other unions. There are mistakes, gaps, omissions that can be learnt from," she said.

Dr Thomas Kigabo, who was Rwanda's chief negotiator during the Monetary Union negotiations, said he was optimistic about the success of the envisaged Union, citing the experiences learnt from the Euro zone crisis.

He said EAC countries are progressively eliminating the non-tariff barriers as indicated in the Common Market Protocol.

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