The East African Community (EAC) single currency is yet to be named, but it is steadily on course towards its institution. Already 49 articles in the monetary union protocol have been negotiated, representing more than half of the issues to be resolved.
In the meantime, the EAC is looking to the European Union, the only regional bloc in the world to have a single currency – the Euro.
A technical team from the EAC left for Europe, last week, to study the economic and monetary operations that have made the Euro one of the major global currencies since its inception in 1999.
Specifically, the 20-member team was scheduled to visit Belgium, Luxembourg and Germany. As the team travels the three countries it may be expected that they will appreciate one of the obvious successes of the single currency in the Eurozone.
The money in their wallets will be as good in one country as in any throughout the 27 EU member states, except Britain which has adamantly stuck to its national currency, the Sterling Pound.
The EAC team will be aware that the need to change money from one currency to another in any of their five countries in the East African Community means that a certain percentage is lost in the transaction. The overall effect is that it raises the cost of doing business.
The Euro emphatically demonstrates that economies in a common market should have a single currency to avoid the costs of having different currencies, such as exchange risks and transaction costs. Cumulatively, this has made life much easier for the vast majority of Euro-citizens.
While in Europe, therefore, the EAC team would do well to also understand the prevailing public perception immediately after the 2002 changeover to the single currency in the Eurozone.
For instance, following the introduction of the Euro there was a widespread public perception that this had led to price increases in every conceivable transaction. This was fostered by some evidence that service industries, especially cafés and restaurants, had used the introduction of new and unfamiliar notes and coins to increase their profit-margins by rounding up their prices.
However, upon publication of the actual inflation figures, it was evident that the changeover had virtually no overall effect on prices.
It emerged that, while the prices of goods bought frequently in cafés and restaurants had been rounded up, prices of goods bought less frequently, such as clothes, cars and other consumer durables had fallen as a result of competition within the Eurozone. The Euro-public had only perceived changes in the service industries and generalized it to the rest of the economy.
It is conceivable a similar scenario may replay in the EAC, with a similar misperception by the public. Any misperceptions will need to be carefully handled for the success of the EAC single currency.
The above are only a couple of examples, but the EAC team will also observe that all has not been rosy in the Eurozone, as may be demonstrated in the recent and much reported crises in Greece and the other “Club Med” countries of Spain, Portugal and Italy.
The EAC team will, therefore, be keen to learn from both sides of the Euro from which we could borrow positives and avoid the pit falls.