What EAC needs to attain single currency by 2024

Following the signing of the Monitory Union Protocol on November 30, 2013 in Kampala Uganda, by the five EAC Heads of State, the Council of Ministers has many times discussed how to implement this signed protocol. Arguments have been tabled some saying that the 10-year roadmap should guide the implementation process others preferring to have macro-economic issues among EAC Partner States to be converged first. Why Financial Market integration? The very first motive for Financial Market integration is one that explains the origins of monies in human societies: the demand for a means of exchange of goods and services that breaks the double coincidence of wants constraint of the barter system. In this regard, two or more countries willing to promote bilateral trade could initiate monetary integration in order to reduce uncertainties on the bilateral exchange rate of their currencies, and secure settlements among cross-borders commercial partners. More often, as in the case of the EAMU, monetary integration is a part of a more global aim, regional economic and political integration. Therefore, from the simple motive of trade promotion, to the high vision of a single political area, monetary integration may take various forms; a clearing arrangement, a payments union (this form reinforces the clearing arrangement with medium-term credit facility for balance settlements), a reserve pooling arrangement, and subsequently a complete monetary union. It is important to note that all EAC Partner States share a clear mind that a Monetary Union will ease cross border business and help in advancing EAC ’s economic growth by providing macroeconomic stability, increase markets, attract more investments and increase household incomes. While the ultimate implementation of the monetary union will end with the single currency, this will enable intra-trade through harmonised payment systems, create monetary stability across the region, and create resilience against external shocks while facilitating movement of capital and financial assets. Monetary Union will also minimize the cost of doing business, but also regional financial transactions. It will enhance investment flows, integrate regional markets and help in preventing the unwanted monetary measures. Why institutions first Apart from transferring the power of issuing currency from the Government to a common institution, Monetary Union entails dramatic changes in the fiscal policy, and in many fields of the economy of the member countries: real sector, foreign trade, etc. Being aware of the main changes is a prerequisite for preparing to join a monetary union by having strong common institutions and regulations in place to manage these and at the same time its costs and benefits and be able to carefully optimize the integration process. These common institutions being at the center can first handle macro-economic issues and later on single currency matters. The Summit of the EAC Heads of State has directed and guided that Partner States should conclude the ratification process of the EAMU Protocol and that the Council of Ministers should implement the roadmap to single currency as indicated in the schedule on the EAMU Protocol. This protocol has provided institutions necessary for the implementation of the EAMU which need to be established before anything else. These include; 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; and the East African Financial Services Commission to be responsible for financial services. For the above institutions to be established, the EAC Council of Ministers need to develop the bills for the establishment of each and every institution provided in the protocol. These bills will then be tabled for consideration by the East African Legislative Assembly. Since the signing of the protocol, The Council of Ministers has prioritised the establishment of the East African Monetary Institute (EAMI) to undertake the preparatory work .EAMI is expected to be in place by 2015. The second priority institution has been the surveillance, compliance and Enforcement Commission (EASCEC) to be established and responsible for surveillance, compliance and enforcement and the East African Financial Services Commission (EAFSC) to be responsible for Financial Services. The establishment of the EASCEC and the EAFSC among others will also require the necessary legal and regulatory framework usually a requirement to be in place for any EAC institution The writer is the Director General, Coordination of EAC Affairs in the Ministry of EAC affairs. Copyright: www.syndicate.org

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What EAC needs to attain single currency by 2024