EA monetary union will create employment
Jun 11, 2010
The East African Community (EAC) is an intergovernmental organisation whose objective is to develop policies and programmes aimed at deepening cooperation among the partner states for their mutual benefit.
The East African Community (EAC) is an intergovernmental organisation whose objective is to develop policies and programmes aimed at deepening cooperation among the partner states for their mutual benefit.
The establishment of a customs union will lead to a monetary union and ultimately a political federation.
Following the successes achieved under the customs union, the common market will ease the movement of goods, services, capital and persons and is expected to commence July 2010. To lower the cost of doing business in the EA region, the common market will be promptly followed by a monetary union.
A monetary union implies that the five EA countries will have a single currency with a fixed exchange rate. This rate will be controlled by one central bank or several central banks with closely coordinated monetary and exchange rate policies.
The monetary union will entail surrendering national currencies for a new regional currency.
A consequence of joining monetary unions is that a country may lose autonomy to manage its monetary policy.
Considering that a monetary policy is a key instrument of macroeconomic management, the constraints imposed by a monetary union on a country may be unpopular.
Definitely, there will be limits on deficit financing in the monetary union area.
The above issues bring into question the rationale of the monetary union. Forming monetary unions derives from, among others, the realisation that with financial globalisation, the utilisation of independent monetary policies has limitations.
Cross border capital flow is presently inevitable and this has since made many developing countries to have unsatisfactory monetary policies.
Such countries are better off in a monetary union given that they cannot in any case efficiently execute an independent monetary policy.
Forming a monetary union, therefore, is a sensible strategy that also creates opportunities. Monetary unions promote intra trade and price stability.
In a monetary union, East Africans will see reductions in transaction costs presently incurred when changing from one currency to another.
Capital inflow and regional investments will increase. Monetary unions improve macroeconomic stability by ensuring fiscal and monetary policy credibility. This is crucial into attracting investors and would translate into economic growth because of the business opportunities and the creation of new jobs.
Besides, a single regional currency has, among other merits, a more stable internal and external value. The EAC, however, must address many pre-requisites before forming a monetary union.
It will require attaining the necessary level of economic and legal convergence.
Besides, the region also has to prepare the operational and regulatory framework.
The change over from national to regional currency needs to be popularised in society especially the financial industry. Monetary unions presuppose open economies and strong trade links among the participants.
Preparations for monetary unions also prioritise garnering public support for them.
Uganda should, therefore, encourage monetary union discussions, publicise the benefits and remove the fears associated with replacing national currencies.
People need to be assured that monetary policies set by a regional central bank can also have national interests on board.
The writer is the principal legal officer East Africa Secretariat, Arusha, Tanzania
The establishment of a customs union will lead to a monetary union and ultimately a political federation.
Following the successes achieved under the customs union, the common market will ease the movement of goods, services, capital and persons and is expected to commence July 2010. To lower the cost of doing business in the EA region, the common market will be promptly followed by a monetary union.
A monetary union implies that the five EA countries will have a single currency with a fixed exchange rate. This rate will be controlled by one central bank or several central banks with closely coordinated monetary and exchange rate policies.
The monetary union will entail surrendering national currencies for a new regional currency.
A consequence of joining monetary unions is that a country may lose autonomy to manage its monetary policy.
Considering that a monetary policy is a key instrument of macroeconomic management, the constraints imposed by a monetary union on a country may be unpopular.
Definitely, there will be limits on deficit financing in the monetary union area.
The above issues bring into question the rationale of the monetary union. Forming monetary unions derives from, among others, the realisation that with financial globalisation, the utilisation of independent monetary policies has limitations.
Cross border capital flow is presently inevitable and this has since made many developing countries to have unsatisfactory monetary policies.
Such countries are better off in a monetary union given that they cannot in any case efficiently execute an independent monetary policy.
Forming a monetary union, therefore, is a sensible strategy that also creates opportunities. Monetary unions promote intra trade and price stability.
In a monetary union, East Africans will see reductions in transaction costs presently incurred when changing from one currency to another.
Capital inflow and regional investments will increase. Monetary unions improve macroeconomic stability by ensuring fiscal and monetary policy credibility. This is crucial into attracting investors and would translate into economic growth because of the business opportunities and the creation of new jobs.
Besides, a single regional currency has, among other merits, a more stable internal and external value. The EAC, however, must address many pre-requisites before forming a monetary union.
It will require attaining the necessary level of economic and legal convergence.
Besides, the region also has to prepare the operational and regulatory framework.
The change over from national to regional currency needs to be popularised in society especially the financial industry. Monetary unions presuppose open economies and strong trade links among the participants.
Preparations for monetary unions also prioritise garnering public support for them.
Uganda should, therefore, encourage monetary union discussions, publicise the benefits and remove the fears associated with replacing national currencies.
People need to be assured that monetary policies set by a regional central bank can also have national interests on board.
The writer is the principal legal officer East Africa Secretariat, Arusha, Tanzania