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Design and Implementation of a Common Currency Area in the East African Community

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  • Thomas Kigabo RUSUHUZWA
  • Paul Robert MASSON

Abstract

The 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.

Suggested Citation

  • Thomas Kigabo RUSUHUZWA & Paul Robert MASSON, 2012. "Design and Implementation of a Common Currency Area in the East African Community," Working Papers tecipa-451, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-451
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    References listed on IDEAS

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    Cited by:

    1. A. Asongu, Simplice & E. Folarin, Oludele & Biekpe, Nicholas, 2020. "The Long-Run Stability of Money in the ProposedE ast AfricanMonetary Union," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 35(3), pages 457-478.
    2. Paluku Kazimoto, 2014. "The Role of Single currency for Countries Economic Development: a Case Study of the East African Community," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 136-143, April.
    3. Laetitia Lepetit & Clovis Rugemintwari & Frank Strobel, 2015. "Monetary, Financial and Fiscal Stability in the East African Community: Ready for a Monetary Union?," The World Economy, Wiley Blackwell, vol. 38(8), pages 1179-1204, August.
    4. Samba Diop & Simplice A. Asongu, 2020. "An Index of African Monetary Integration (IAMI)," Working Papers 20/003, European Xtramile Centre of African Studies (EXCAS).
    5. Simplice Asongu & Jacinta Nwachukwu & Vanessa Tchamyou, 2017. "A Literature Survey On Proposed African Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 878-902, July.
    6. Guglielmo Maria Caporale & Luis Gil‐Alana, 2020. "Prospects for a Monetary Union in the East Africa Community: Some Empirical Evidence," South African Journal of Economics, Economic Society of South Africa, vol. 88(2), pages 174-185, June.
    7. Kigabo-Rusuhuzwa, Thomas & Heshmati, Almas, 2022. "Are the East African Community's Countries Ready for a Common Currency?," IZA Discussion Papers 15210, Institute of Labor Economics (IZA).
    8. Asongu, Simplice & Nwachukwu, Jacinta & Tchamyou, Vanessa, 2017. "A summary of a survey on proposed African monetary unions," MPRA Paper 79637, University Library of Munich, Germany.
    9. Aweng Peter Majok Garang & Hatice Erkekoglu, 2020. "Business Cycles Synchronisation and Symmetries in the Transition to East African Monetary Union," South African Journal of Economics, Economic Society of South Africa, vol. 88(4), pages 495-517, December.
    10. Menna Bizuneh & Steven Buigut & Neven Valev, 2020. "Beyond Borders: The Euro Crisis and Public Support for Monetary Integration in East Africa," South African Journal of Economics, Economic Society of South Africa, vol. 88(4), pages 518-535, December.

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    More about this item

    Keywords

    EAC monetary union; fiscal surveillance; optimum currency areas; parallel currencies; regional integration;
    All these keywords.

    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

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