Five East African Nations Look to Currency Union
by Richard Giedroyc
April 10, 2012 – Burundi, Kenya, Rwanda, Tanzania, and Uganda may have more in common than shared borders. Each of these five nations is considering a proposed East African Community Monetary Union that would merge their coin and bank note systems in much the same way as has the European Union.
Currency unions do not happen on short notice. This one is no different. The logistics regarding the production and distribution of a mutual system of coins and bank notes has not been openly addressed. It isn’t clear if the money of one participating nation would be distinguishable from that of another or not. Who would strike coins and print bank notes has not been explained. Even the mechanics of a central bank to administrate the currency union needs to be planned.
All these complexities are what go into a currency union. When the EU began to plot out its currency union not only economic requirements had to be set and met, but such considerations as what to do with the vast amounts of metal coins and paper bank notes that were being demonetized needed an answer. The name of new denominations and what to depict on them appears to be trivial when compared to some of the other considerations required to make a currency union work. How many new coins and bank notes need to be produced and stockpiled, how do you safeguard those stockpiles, how do you distribute them in a timely manner once the currency union begins, and how do you educate the public who will use them?
EAC Secretary General Dr. Richard Sezibera will be tasked with all of these matters and more. In the March 1 Aar es Salaam or Tanzania Daily News newspaper Sezibera is quoted as saying, “The retreat is expected to facilitate an informal engagement of the top policy makers on the agenda of the EAC monetary union in order to have [a] common view, as we enter a crucial phase of the negotiations on monetary union.” This is a reference to an early April retreat he has called for the finance ministers, their central bank governors, and the central bank secretaries of the countries considering the proposed currency union.
This is only one of many meetings that have taken place or are yet to come. In the March 12 issue of East Africa Business Week Sezibera explained that “by December the partner states will have the protocol signed but it will lay out benchmarks for monetary policy integration that will later culminate into the introduction of the single currency.”
Merging the currencies of these five nations will be quite a task. Kenya, Tanzania, and Uganda each use shilling denominated currencies while Burundi and Rwanda each use francs. Each is on a decimal system in which 100 cents or its equivalent is equal to either the shilling or the franc.
Burundi has not issued coins for circulation in recent history, although very high denomination bank notes reflecting the domestic inflation problem are in use. Kenya has circulated nickel-clad steel 1-shilling and ringed bimetal (copper-nickel center, brass ring) 40-shilling coins. Rwanda’s recent circulating coinage has consisted of an aluminum composition 1 franc, brass-plated steel 5 and 10 franc, and nickel-clad steel 20 and 50 franc. Bank notes now in use are in the denominations of 50, 100, 200, 500 and 1000 shilling.
Tanzania has not issued any coins for circulation in recent times, however this country has continued to sponsor non-circulated legal tender commemoratives meant for collector markets. Small change denomination coins that are legal tender exist, but due to inflation none of these circulate. Instead bank notes are in use in 500-, 1000-, 2000-, 5000 and 10,000-shilingi denominations.
Likewise, Uganda has sponsored NCLT coinage, however in addition Uganda has issued a nickel-plated steel 50-shilling, stainless steel 100-shilling, copper-nickel 200-shilling, and a nickel-brass composition 500-shilling coin, each meant to be used in commerce. Bank notes are in use in denominations as high as 50,000 shilling.
EAC Deputy Secretary General Dr. Enos Bukuku recognized it will take more than a physical common currency to make this proposed union work. He said, “The national central banks should pursue price stability, while finance ministers should ensure that there fiscal stability, establish regional and supra national regulatory authorities in banking, finance, capital markets, pensions, insurance, microfinance, common accounting standards among others.” Bukuku said the completion date for all this has been set for December 31, 2015.
Sezibera added, “We signed the Customs Union protocol and it was implemented over a period of five years and this year we are moving into a single customs territory while negotiations for the monetary union are progressing well among the five partner states. We are currently finalizing a framework for dialog with the private sector, civil society organizations to involve the citizens in the integration agenda.” Sezibera continued, “We need to have the common market protocol function especially the implementation of the provisions of freedoms and rights which is a challenge to all partner states.”
Perhaps, but consider what Center for the Study of African Economics Director Paul Collier (Oxford) said when he addressed the February EAC Monetary Union summit in Arusha. At that meeting Collier warned the EAC members that their economic imbalances could create regional instability similar to that now being experienced by the EU. He warned those at the conference it is difficult to enforce spending limits among monetary union members.