Towards a common currency in the East African community (EAC) : issues, challenges and prospects 2012

Abstract

Interest in regional integration, including monetary integration, in Africa has been intense over the decades since independence and various regional groupings have been formed. The major benefits of a monetary union are the reduction in transaction costs, economies of international reserves, the elimination of exchange rate risk and region-wide price harmonization. On the other hand, the costs of a monetary union are related to the loss of sovereignty over monetary and exchange rate policy. The process of East African Community (EAC) integration has continued to gather momentum, following the establishment of the customs union and the common market in 2005 and 2010 respectively, and the next phase is the EAC monetary union. EAC monetary union negotiations began in January 2011 and are expected to conclude in 2012. The objective of this paper is not to question the desirability of monetary union within the EAC, but rather to complement the few existing studies on EAMU by assessing the degree of preparedness the EAC common currency and support the overall process of monetary union in EAC.