East Africa's hopes for single currency dashed

EAC member states currencies
Contrary to earlier projections, the East African Community (EAC) will have to wait much longer before it establishes a single currency.

The revelation was made in Arusha this week by the bloc’s secretary general, ambassador Richard Sezibera.

Speaking on the sidelines of the conference themed “EAC after 10 Years”, Ambassador Sezibera said the only significant achievement that  the EAC will record this year would be the signing of the Monetary Union Protocol.

The monetary union would set the tone for channels through which a single currency could be formulated.  In 2007, EAC heads of state  instructed the East African Community Monetary Committee Affairs  to fast track the Monetary Union, as one of the major steps towards  attaining the regional single currency goal.

Dr Sezibera
The committee comprises governors of  the central banks of the five  member states – Kenya, Uganda, Tanzania, Rwanda and Burundi.

However, Ambassador Sezibera said apart from the ongoing negotiations of the monetary union protocol, not much has been discussed on  the establishment of a single currency.

He said partner states are currently preparing the region to harmonise its monetary systems and exchange policies, payment and settlement system, statistics and regionalisation so as to have a harmonised single financial market. 

The EAC has since its establishment in 1999 taken significant steps in implementing its mandate. The most significant achievement has been the negotiation of the EAC Customs Union Protocol, which was signed in March 2004, and began operating in January 2005.

The customs union has strengthened the position of the EAC as an economic centre of gravity, with important implications for many types of stakeholders, including foreign investors.  

 After the establishment of the common market in October 2010, the next stage of the EAC integration project would have been formation of the monetary union this year, which then would usher in the most ambitious part, the political federation.

Despite the progress that has been made so far in the integration process, experts have been expressing misgivings over the pace it was taking and the set timelines for establishing the various protocols. Major concerns have been over the single currency plan and attainment of the political federation by 2015.

Dr Ngowi
According to economist Honest Ngowi of Mzumbe University, the target date for the monetary union was too ambitious and highly unrealistic given the situation on the ground.

He says there are too many pieces and bits that have to fall in place in the complicated jig-saw puzzle before a meaningful monetary union can be realised as macro-economic convergences.

Addressing the EAC conference, economist Paul Collier of Oxford University advised the bloc’s member states to take time to study all the intricacies involved in setting up a monetary union.

He said doing that was important in order to avoid any future crisis that might arise, citing the ongoing Euro Zone currency difficulties as a case in point.

 “It’s not the right time for EAC to have a single currency. You need a lot of time; it’s not good to rush. There is a need to learn more, especially what would be the incentives among the partner states and the penalties for discipline to those who will not fulfill their obligations,” Prof Collier noted.

A World Bank financial sector and private development advisor for the African region, Mr Michael Fuchs, said the EAC should first focus on other issues, like developing infrastructure, instead of wasting time on a monetary union that will not deliver development to the region.
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