EAC states working hard on single currency regime - Nchemba.

Deputy Finance minister Mwigulu Nchemba.

Deputy Finance minister Mwigulu Nchemba has attributed what the public sees as a delay in the establishment of the East African monetary union as legal processes that are conducted by member countries to achieve the strong single currency regime.

 

Speaking in an interview with The Guardian recently, Nchemba said that processes are going well to ensure that the common currency is in place so as to benefit all the states in the region.

 

“It’s not true that the establishment of EAC Monetary Union has delayed, we are in progress to ensure that all processes are preceded as the move to make sure that all individual within the member states are benefited with the currency,” he said.

 

He added: “Tanzania is happy with the establishment of the EAC common currency and we are providing all the requirements to ensure that the currency is implemented.”

 

Economic experts say a new currency will be attractive if it is more stable in terms of better maintaining of its purchasing power than the currencies it replaces. 

 

This may come from a strong institutional framework within the monetary union, achieving more discipline over fiscal policies insulating the regional central bank from pressures to provide monetary financing.

 

In the run-up to achieving a common currency, the East African member states aim to harmonise monetary and fiscal policies and establish a common central bank.

 

Kenya, Uganda, Tanzania and Rwanda already present their budgets simultaneously every June.

 

The Committee on Regional Integration last year permitted the protocol, which was signed by the leaders of the five countries, and asked Parliament to endorse the monetary union—which is expected to be in place within nine years.

 

The protocol allows Kenya, Uganda, Tanzania, Rwanda and Burundi to gradually converge their currencies and increase commerce.

 

Established 13 years ago, the EAC with nearly 140 million people has already created a common market and a single customs union.

 

The existence of multiple currencies in the EAC region have said to discourage trade and investment among partner states due to foreign exchange transactions costs.

 

However, interest in regional integration, including monetary integration, in Africa has been intense over the decades since independence and various regional groupings have been formed.

 

Those initiatives were stimulated by the general small size of individual economies leading to a desire of promoting economies of scales in production and distribution.

 

Currently, two monetary integrations in Africa are in place: the CFA franc zones (UEMOA and CEMAC) and the Common Monetary Area (CMA) in South Africa.

 

Meanwhile, several regional monetary union projects are planned such as Ecowas, Comesa, and SADC as well as the EAC. A common currency for Africa is a long-term goal of the African Union.

 

The major benefits of a monetary union are the reduction in transaction costs, economies of international reserves, the elimination of exchange rate risk and region-wide price harmonisation.

 

On the other hand, the costs of a monetary union are related to the loss of sovereignty over monetary and exchange rate policy, especially in the case of asymmetry shocks that make the same monetary policy inappropriate for all member countries of a monetary union.

 

Indeed, in a monetary union, member countries loose unilateral control over instruments (monetary policy instruments and exchange rate policy) that may be crucial in dealing with country specific macroeconomic shocks.