Design and Implementation of a Common Currency Area in the East African Community
AbstractThe East African Community (EAC) has fast-tracked its plans to create a single currency for the five countries making up the region, and hopes to conclude negotiations on a monetary union protocol by the end of 2012. While the benefits of lower transactions costs from a common currency may be significant, countries will also lose the ability to use monetary policy to respond to different shocks. Evidence presented shows that the countries differ in a number of respects, facing asymmetric shocks and different production structures. Countries have had difficulty meeting convergence criteria, most seriously as concerns fiscal deficits. Preparation for monetary union will require effective institutions for macroeconomic surveillance and enforcing fiscal discipline, and euro zone experience indicates that these institutions will be difficult to design and take a considerable time to become effective. This suggests that a timetable for monetary union in the EAC should allow for a substantial initial period of institution building. In order to have some visible evidence of the commitment to monetary union, in the meantime the EAC may want to consider introducing a common basket currency in the form of notes and coin, to circulate in parallel with national currencies.
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EAC monetary union; fiscal surveillance; optimum currency areas; parallel currencies; regional integration;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-AFR-2012-04-17 (Africa)
- NEP-ALL-2012-04-17 (All new papers)
- NEP-MAC-2012-04-17 (Macroeconomics)
- NEP-MON-2012-04-17 (Monetary Economics)
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