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The road map to a successful East African Monetary Union
East African Heads of State sign the protocol on the establishment of the EAC Common Market at Arusha International Conference centre, Tanzania during a past function. Photo/FILE
Posted Monday, March 22 2010 at 00:00
Like most other currency unions, East African Monetary Union is a political enterprise.
That in itself is not a bad thing.
London-based economist, Gerard Lyons, observes that politics was the driving force behind European monetary integration —which, despite the problems with Greece, has been fairly successful.
According to Dr Lyons, historically there have been four types of monetary unions.
One is where political union has ensured the monetary union’s success.
Examples include German Unification at the end of the last century; the longer lasting Italian Monetary Union that followed political unification in 1861; and the US Federal Reserve, established in 1913 as a decentralised system.
A second category comprises monetary unions of small countries that survive without a political union, provided there has been economic convergence.
Two examples are the 1923 Union between Belgium and Luxembourg and the CFA Franc zone in West Africa, which has survived since 1948.
In a third category, the survival of the monetary union is completely dependent on that of the political union.
The original East African shilling is a good example of this.
Others include the Soviet system, and the 19th century German Monetary Union, which collapsed with World War 1.
A final category is a temporary monetary union that survives for a long time without a political union but eventually collapses.
The Latin and Scandinavian Monetary Unions from the last century are examples.
So where does East Africa’s Monetary Union project fall?
According to Barrack Ndegwa, Director of Economic Affairs at Kenya’s Ministry of East African Community, the EAC is based on an intergovernmental model of regional integration.
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