Check the lead times to the EAC Monetary Union
The East African Community (EAC) has been urged to be cautious before it can institute a monetary union. It has specifically been urged to heed lessons from the Euro zone.
The EAC could also pick from the easily accessible history leading to the establishment of the European Monetary Union (EMU).
The 1992 Treaty on European Union provided for the EMU to be introduced in three stages. The first stage, from 1 July 1990 to 31 December 1993, saw the abolition of exchange controls, ensuring free movement of capital between Member States.
The second stage, from 1 January 1994 to 31 December 1998, ensured convergence of Member States’ economic policies, while the national central banks remained independent. The European Monetary Institute (EMI), made up of the governors of the central banks, was established to carry out the necessary preparations for the introduction of the single currency.
The third stage, beginning 1 January 1999, saw the coming into being of the euro as the single currency. The European Central Bank took over from the EMI and became responsible for monetary policy of the Member States.
Advancement to the third stage by the member states “was subject to the achievement of a high degree of durable convergence measured against a number of criteria” that put a cap on the rate of inflation, national budget deficits and public debt, all of which may not exceed a certain determined percentage. A Member State not complying with them was likely to face penalties.
Though all has not been well in the eurozone lately, as the case of Greece may illustrate, the end result has nevertheless been that the single economic space anchored by the euro has forced European policy makers to compete for people, goods and capital with improved policies. This, perhaps, is the key lesson.
An EAC delegation that included members High Level Task Force (HLTF) of experts negotiating the EAC Monetary Union Protocol visited Europe, recently, to learn from the intricacies of what it took to achieve the above.
The delegation, particularly members of the HTLF, came back with the impression that “The experience of the European Union shows that the road towards monetary union is challenging.”
The impression is explained in a report from the visit, which adds: “The achievement and sound outcome requires a number of different steps to be taken, all of which require a strong political achievement and significant lead times.”
One may not need to compare, but it would serve to take note the above lead times and the steps taken towards the establishment of the European single currency.
Even as we speak of the EAC Monetary Union, the Common Market is still some way from being seamless across borders due to existing non-tariff and other barriers. EAC member states are yet to repeal inhibiting national laws to fully conform to the Common Market Protocol, two years after it came into force.
While repeal of the laws is being addressed, all indications nevertheless suggest that the political commitment remains to ensure the EAC attains its stated goals. And that the EAC took the trouble to send the HTLF to the eurozone to gain from its experience is an indication that “the road towards monetary union” is probably being taken at the pace it should to achieve the common currency.
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