Towards an EAC Monetary union
Have you heard about the Euro? The Euro is the single currency shared by 19 of the European Union's Member States, which together make up the Euro area. The introduction of the euro in 1999 was a major step in European integration. It has also been one of its major successes: more than 337.5 million EU citizens in 19 countries now use it as their currency and enjoy its benefits.
That is what the citizens of the five EAC partner states (and those of South Sudan, if they join EAC) may soon be getting into. That it will be possible for you to travel to Mbeya in Southern Tanzania or Gulu in northern Uganda, buy and pay for goods or services without having to change money. What do you think that currency will be called? Tanzania, Uganda and Kenya share the name ‘’Shilling’’ while Burundi and Rwanda’s currency is called ‘’Franc.’’ But are we there yet?
The East African Monetary Union Protocol was approved and signed by the 15th Ordinary Summit of Heads of State of EAC which took place on 30th November 2013 in Kampala – Uganda, thus giving the necessary political impetus and ‘’wings to fly’’ to the 3rd stage of the integration process. Over the past there years, the EAC has been working with the partner states to put in place the necessary protocols, procedures mechanisms to actualize this next step in integration.
According to the Treaty, the objective of the Monetary Union shall be to promote and maintain monetary and financial stability aimed at facilitating economic integration to attain sustainable growth and development of the Community (Article 3 of EAMU Protocol). The protocol provides for establishment of the following necessary Institutions to support Monitory Union:
- The East African Monetary Institute
- The East African Statistics Bureau to be Responsible for Statistics
- The East African Surveillance, Compliance and Enforcement Commission to be
- Responsible for Surveillance, Compliance and Enforcement
- The East African Financial Services Commission to be responsible for Financial Services
Scope of Co-operation in the Monetary Union:
Article 4 of the Monetary Union Protocol gives the Scope of Co-operation. It states that the provisions of this Protocol shall apply to activities undertaken by the Partner States, in co-operation in monetary and financial matters and that Partner States agree to: harmonize and coordinate their fiscal policies; formulate and implement a single monetary policy and a single exchange rate policy; develop and integrate their financial, payment and settlement systems; adopt common principles and rules for the regulation and prudential supervision of the financial system; integrate their financial management systems; harmonize their financial accounting and reporting practices; adopt common policies and standards on statistics; and adopt a single currency;
The following are the mandates of different Institutions to be established to Guide the EAC Monetary Union process
1 The East African Monetary Institute: The East African Monetary Institute (EAMI) as a transitional institution of the Community shall be responsible for preparatory work for the Monetary Union.
2 The East African Central Bank: The East African Central Bank shall, together with the national central banks, form a functionally integrated system of central banks. The system of central banks shall perform the functions of a central bank in the Monetary Union. In the performance of its functions, the East African Central Bank shall be independent and shall not be influenced by a Partner State. The Partner States shall provide the capital for the East African Central Bank as may be determined by the Council. The financial rights and obligations of the Partner States in relation to the East African Central Bank shall be distributed among the Partner States in accordance with the financial key determined by the Council and shall be adjusted every three years.
3 Institutions Responsible for Financial Services: This institution will among others have the following primary objectives:
- To achieve stability in the financial system
- To regulate operations and the conduct of the financial system
- To improve financial deepening and inclusion
- To protect financial services consumers
- To create a framework for information sharing among the financial services.
4 Institution Responsible for Surveillance, Compliance and Enforcement: This institution will be responsible for Surveillance and enforcement of compliance with the macroeconomic convergence during the transition period and after entering into the single currency area.
5 Institution Responsible for Statistics: This Institution, together with the national statistical offices will form an EAC statistical system where the National statistical offices shall be responsible for the implementation of standards set by the Institution responsible for Statistics.
East African Monitory Union Roadmap
The East African Monitory Union implementation roadmap outlines important activities that need to be undertaken to achieve the East African common currency area within a period
- of 10-years after the commencement of the monetary union. The period is justified on the ground that the region will need to ensure:
- Full implementation of the Customs Union and Common Market Protocols;
- Harmonization of fiscal policies;
- coordination and harmonization of the monetary and exchange rate policies during the transition to the Monetary Union;
- Harmonization of payments and settlement systems;
- Harmonization policies, standards and laws relating to production, analysis and dissemination of statistical information;
- Integrate financial systems and adopt common principles and rules for the regulation and supervision of the financial system;
- Harmonization of relevant national Laws and frameworks to facilitate the establishment of the Monetary Union;
- Phase out any outstanding central bank lending to public entities;
- attainment of the macroeconomic convergence criteria;
- Establishment of East African Community stabilization facility;
- Design and implement a common exchange rate mechanism;
- Determination of Conversion Rates and design of a single currency;
- Enactment of the legal instrument establishing the EACB and introduction of single currency (final stage).
For this and more, join RiimNet-Africa’s Money and Finance Working Group to follow and participate in the Integration the progress