EAC outlines efforts toward elusive regional currency

The EAC Monetary Affairs Committee has outlined steps taken so far toward elusive regional currency. 

The talk dominated the 27th Monetary Affairs Committee (MAC) meeting held in Juba, South Sudan, with more focus put on the establishment of the East African Monetary Union (EAMU).

The committee agreed that partner states must harmonize monetary policies, financial regulations, and crisis management frameworks to realize the goal. 

EAC Partner States are in the process of implementing the Protocol on the Establishment EAMU, which was signed in November 2013 with the hope of having the use of a common currency by the end of this year. 

Even so, this process has been slow, including the introduction of a single currency.

One currency would have profound implications for businesses and banks across the region by reducing transaction costs and cutting banks’ currency trading revenue.

Other significant achievements include the adoption of price-based monetary policy frameworks, harmonization of macroeconomic and financial statistics, and the promotion of cross-border payment systems.

However, the Committee reaffirmed its dedication to fulfilling the remaining objectives outlined in the EAMU roadmap, with a renewed focus on convergence criteria review to meet the revised 2031 deadline.

The meeting brought together Governors and Senior Officials of the EAC Partner State Central Banks, along with representatives from the EAC Secretariat.

The Governors pledged to continue working with the relevant authorities to advance the regional integration agenda.

 The Committee welcomed the Central Bank of Somalia as the newest member of the EAC Monetary Affairs Committee, underscoring the collective commitment to supporting Somalia's integration into the EAC.

The one currency talk has been a thorn in the flesh of the region's socioeconomic unity since its establishment in 1967.

The fear of Kenyan domination undermined the EAC’s previous incarnation and contributed to its collapse in 1977.

It was revived in 2000 but Kenya still enjoys the region’s biggest GDP at $110bn in 2021, ahead of Tanzania with $68bn and Uganda with $41 billion.

Similarly, other governments in the region have been reluctant to open up their banking sectors out of concern that their banks could be overwhelmed by their larger Kenyan rivals.

According to the African Business Top 100 African Banks survey for 2022, Kenya hosts the three biggest banks in East Africa as ranked by capital: KCB  Bank, Equity Bank and Co-operative Bank, ahead of Tanzania's  Microfinance Bank and CRDB Bank. 

Kenya's currency is 147 times stronger than the Congolese Franc, 35 times more than the Ugandan Shilling and 23 times more than the Somalian and Tanzanian shilling. 

"The meeting deliberated the global economic outlook, as well as the impact of persistent inflationary pressures, climate change ramifications and geopolitical tensions on the region,'' a joint statement reads. 

The Committee acknowledged a range of growth rates ranging from 2.8 percent to 8.1 per cent, largely attributed to advancements across key sectors and commitment to the implementation of policy reforms that have promoted private and public investment in some Partner States.

Further, the Committee foresees continued regional growth outpacing global and Sub-Saharan Africa benchmarks, supported by sustained public investment, enhanced export performance, and pro-private sector measures.

However, the region grapples with challenges, including adverse global financial conditions, geopolitical turmoil, and climate change ramifications, resulting in the amplification of challenges like high fuel and food import prices, market access costs, and currency and reserve pressures.

A focal point of deliberation centered on inflation trends, which, while having escalated in 2022 and 2023, have since eased following the implementation of appropriate monetary policies and the easing of global commodity prices.