- A monetary union, it is hoped, will lead to reduction in transactional costs, consolidation of the single market, price convergence and stability.
- The threat posed by the underperforming common market to the monetary union cannot be ignored and must first be addressed.
It is der rigueur in the field of regional integration that a functioning common market is necessary before a monetary union.
This is echoed in Article 5(1)(a) of the protocol establishing the East African Community Monetary Union (Eamu), which dictates that there must be seamless movement of people, goods and services within the East African Community partner states.
This assumption feeds on the fact that it is more pragmatic to realise the benefits of a monetary union where there is free movement of goods, labour and capital.
Simply put, money moves where goods, services and people can also move.
But with a lukewarm common market, the EAC is creating a monetary union that will, among other things, have a single currency for Kenya, Uganda, Tanzania, Rwanda, Burundi and South Sudan.
A monetary union, strictly defined, means the use of a common currency by a group of countries. It entails the abandonment of national currencies and fiscal policies for a supranational shared currency.
Previously, the EAC had a “monetary union” with the shilling as its currency. This ceased with the end of colonial rule.
But in 2013, the revamped EAC signed the Protocol for the Establishment of the East African Community Monetary Union in line with the treaty.
The Heads of State soon ordered the acceleration of a single currency. Stakeholder forums and comprehensive studies were held and a high-level task force formed to assess preparedness for such a union.
A monetary union, it is hoped, will lead to reduction in transactional costs, consolidation of the single market, price convergence and stability.
With increased specialisation and economies of scale it should increase efficiency in production, increasing the EAC’s total GDP.
A single currency is expected to bring about economic emancipation and the monetary union to lead to a stable EAC currency that will boost certainty to business and trade as well as enhance the EAC’s bargaining power in trade negotiations, attracting multinational investors.
ACTS OF DISHARMONY