The East African Legislative Assembly (EALA) on Wednesday, June 21, passed, with amendments, the motion to urge the Council of Ministers and partner states to use local currencies in all transactions in the East African Community (EAC) so as to boost regional trade.
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The motion was moved during an EALA plenary in Arusha, Tanzania, by MP David Ole Sankok (Kenya) and seconded by MP Odongo George Stephen (Uganda).
Sankok argued that "by passing this motion, the Assembly will have helped the EAC to boost volumes of trade and services among EAC partner states, promote and give confidence to the local community to participate in inter-country trade, and save billions charged as exchange fee by third party.”
He added that it would be a precursor of the EAC single currency in line with the EAC Monetary Union.
Some MPs said that the move should focus more on fast-tracking the realisation of the single currency under the EAC monetary union.
After inputs from fellow MPs, Sankok said he was willing to move the motion in an amended form, pointing out that all in all, what was intended was to improve trade within the region and strengthen its members’ currencies.
He therefore moved it, with amendment, to read "motion for the resolution of the Assembly recommending to the Council of Ministers to fast-track the implementation of the monetary union to have a single currency within our East African Community region.”
While explaining the relevance of the motion, Sankok said that it was in line with the EAC’s primary objectives under Article 5 of the Treaty establishing the Community, which is to deepen and widen the cooperation of partner states in the economic field for the mutual benefit of all partner states.
He was concerned that "whereas the partner states had committed to establish a Monetary Union by 2024, the roadmap has been revised to to 2031 which will delay the establishment and use of a single currency.”
MP Gabriel Ntisezerana (Burundi) said that the move could be a solution to the issue of costly transactions resulting from exchange rates; but expressed concern about acceptance, and how exchange rates of the local currencies could be set.
MP Françoise Uwumukiza (Rwanda) opposed the motion, pointing out that it was contravening "the EAC Treaty [which] says that the currency of the Community is US Dollars.”
"It will be very hard unless we start by amending the Treaty,” she said.
Also, she said, there were procedures for heading to the single currency, which were under development, refering to institutions that are supposed to enable the monetary union.
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Money lost in currency exchange charges
Sankok argued that by using the US Dollar in intra-regional trade and investment, the Community continues to be exposed to associated monetary policy and financial risks.
Also, he said, he was "convinced that inter-country trade between EAC partner states and trade between EAC partner states and other economic blocks is becoming expensive, punitive, cumbersome, inconvenient and troublesome due to involvement of the U.S. Dollars.”
"For example; a Ugandan businessman travelling to Tanzania to buy maize must first convert Ugandan shillings into United States dollars at a fee. Then, once in Tanzania, he must convert United States dollars to Tanzanian shillings at a fee. In a single conversion, the businessman loses 7-15% as exchange rate fee,” he said.
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Sankok recalled that the annual EAC trade amounted to more than $74 billion as of 2022, according to data shared by the EAC Council of Ministers in the 2023/2024 budget speech on June 13.
Of that amount, he argued, 10 per cent of it is lost in selling and buying US dollars, "meaning we lose $7.4 billion to America in the exchange fee.”