We recently held a debate on the issue of having a common currency in East Africa. My conclusion was interesting. As many of us know, the fast developing economic bloc that the East African Community (EAC) is, has developed into a variety of common systems aimed at boosting our region as a whole for the common good.
Using a common currency is one of them. Whether or not it is essential for the community, you tell me. The debate here was and is whether or not it is essential for economic integration in East Africa. We weighed different costs and benefits of using a common currency as far as economic integration is concerned and came up with impressive arguments altogether.
Some of the benefits are; the easing of business transactions across East African boarders in ways such as no exchange of cash at boarder points hence less time wastage. There would also be a creation of fair understanding of negotiations on certain commodities hence less chances of currency-based cheating and also reducing burden of long bureaucracies and red tape.
Additionally, a common currency would solve the problem of volatile exchange rates by avoiding situations such as devaluation of one currency affecting the profits of another—instead one currency would be transacted which benefits trade.
Very importantly, we would have a common currency that improves the relationship among the East African people by encouraging their mobility within the region for transaction motives which improves interactions as well as creates a sense of one identity united by one currency.
On the other hand some disadvantages that would arise from the policy may include the following;
Firstly, the implementation of a common currency would create a sort of neck and neck companies among companies in the region which will mean the collapse of the small companies in favor of the bigger companies; yet many companies in the region are small scale companies and will ultimately reduce the balance of payments of some countries in the region like Burundi and Rwanda.
The other issue would be the loss of national sovereignty of the strong economies most especially Kenya’s which is the strongest so far because it would have no benefit from the reduction of its currency value in the process of harmonizing currency value of the whole region.
Another interesting cost is that of the resulting unemployment of forex bureaus throughout the region. They too are a source of government and foreign exchange earnings so would it not affected and inevitably cause reduction of revenue for each country?
Well, I couldn’t agree less with our conclusion that a common currency for East Africa has both merits and demerits in relation to economic integration. However serious measures should be taken to undermine risks and challenges that could be faced in the implementation of such an important ventral to the development and integration of the East Africa.