The National Bank of Rwanda (BNR) Governor, John Rwangombwa, left for Zanzibar, yesterday, to join his counterparts from the rest of the East African Community (EAC) at a meeting of the Monetary Affairs Committee (MAC) taking place today.

MAC is mandated to enhance monetary and financial cooperation in accordance with the approved EAC macroeconomic policies, harmonisation programmes and convergence framework.

Since Monday, regional central banks’ top technocrats have been brainstorming about regional monetary issues such as attainment of a common exchange rate policy and will present their report to the governors today for further discussion and possible adoption.

The governors are meeting at a time when regional currencies have depreciated heavily against a strengthening dollar, which has escalated exchange rates with trickle-down effects on commercial bank lending rates as well as inflationary pressures on trade.

In Zanzibar, a Tanzanian archipelago off the coast of East Africa, the governors are not only taking a break from the noises on their respective markets back home, but also using the serenity of the island to discuss ways of stabilising the current foreign exchange pressures on the region’s currencies.

Among the topics for discussion is how to deepen implementation of a memorandum of understanding signed last year allowing for the use of the EAC’s national currencies to settle cross-border transactions.

In a recent exclusive interview with The New Times, Rwangombwa revealed that although they have made tangible progress since last year towards building an enabling regional payment system to facilitate traders in cross-border transactions, more efforts are needed.

"We shall be discussing how to expedite the implementation of the regional currency convertibility so that when a Rwandan goes to import goods in Kenya, they can directly use the Franc to settle transactions without converting to US dollars,” Rwangombwa said.

The general practice today is that a Rwandan trader shopping in Kenya has to first exchange Francs into dollars and then to Kenyan shillings, something that results into double exchange-related losses to traders, according to experts.

Allowing the region’s local currencies to directly settle transactions in cross-border trade would save traders double exchange-related costs and also reduce reliance on the dollars in intra-region trade.

The development literally means each of EAC’s five central banks must have cash reserve accounts of all the region’s currencies to facilitate payment clearances for traders involved in cross-border commerce.

For instance, BNR should have reserves for the Uganda, Kenya and Tanzanian shillings as well as Burundian francs; and these countries’ respective central banks should do the same.

Rwangombwa said the account opening process has already been achieved across the bloc, but now efforts must be channeled towards popularising the development among traders in the region.

If successful, as anticipated, direct convertibility will end situation where local currencies were largely playing a by-stander’s role as the dollar dominated.

"The system is already working and traders can actually use local currencies to settle payments, only that the volumes are still very small,” said Jonathan Gatera, formerly BNR director of financial stability and now head of Rwanda Social Security Board.

In order to increase trade volumes transacted using local currencies, the central bank governors are expected to leave Zanzibar after approving a regional framework for deepening awareness about the new harmonised payment system.

However, the governors are dealing with a situation where traders still demand to settle payments in dollars; it’s that attitude that needs to be changed through awareness campaigns.

"In other words, this is a precursor to an EAC single currency,” added Gatera.

At the moment, a single currency is a dream the EAC hopes to see come true in ten year’s time.

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