A single currency is not something the East African Community should even dare experimenting with. It will promote capital miss-allocation through cheap credit inflows to speculative assets such as real estate and promote the development of real estate bubbles, while inflating the costs of export industries and hampering industrial development, within the poorer and less developed EAC countries.
And when a financial crisis comes along, a country will quickly find itself needing a bailout with counter-productive austerity conditional, because Keynesian response strategies are impossible without monetary flexibility.
Fixed exchange rate regimes don’t work, from the awful gold standard to the Eurozone. They are generally incompatible with meeting the needs of the broad segments of a capitalist economy and society including workers, SMEs, and banks unless the banks can blackmail governments to bail them out repeatedly at the expense of all other stakeholders, which they manage to.
Countries in the EAC are better off pursuing a flexible exchange rate regime, that allows countries to devalue and embark on stimulus measures in times of global or regional economic crisis.
Fixed exchange rate regimes or integrated currencies are a false idol of contemporary globalisation. They are hyped up by self described sooth seers, but they are utterly destructive to economy and society in the long term, and undermine long-run opportunities and benefits from globalisation.
Reaction to the story, “EAC single currency protocol shapes up”, (The New Times, August 1)
Why EAC should abandon the single currency project