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East African Community: Pre-conditions for an Effective Monetary Union


  • Durevall, Dick

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)


Kenya, Tanzania and Uganda signed the Treaty for the establishment of the East African Community (EAC) in 1999, which entered into force in July 2000. In 2007 it was signed by Burundi and Rwanda. According to the Treaty, EAC should first form a customs union, then a common market and a monetary union, and finally a political union. The Customs Union was formally completed in 2010, and Common Market Protocol was signed in 2009. Currently the intention is to sign the East African Monetary Union protocol 2012, while the date for actual implementation of the common currency is uncertain. The purpose of this note is to discuss preconditions for an effective monetary union among the EAC members, with a focus on Rwanda. It first outlines potential economic benefits and costs of a monetary union, and then discusses political and institutional preconditions. It concludes that although there are potentially substantive economic net-benefits, a monetary union is a risky project for political reasons. The political will among policymakers is key to successful implementation, and it could vanish with a change of government or because of discontent among influential lobby groups. However, the process towards forming are monetary union is appears to be highly beneficial the EAC members, both directly by improving monetary policy and indirectly by contributing to economic integration.

Suggested Citation

  • Durevall, Dick, 2011. "East African Community: Pre-conditions for an Effective Monetary Union," Working Papers in Economics 520, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0520

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    References listed on IDEAS

    1. Chris Hunt, 2005. "A fresh look at the merits of a currency union," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 68, December.
    2. Kishor, N. Kundan & Ssozi, John, 2009. "Is the East African Community an Optimum Currency Area?," MPRA Paper 17645, University Library of Munich, Germany.
    3. Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 454-481, May.
    4. Buigut, Steven K. & Valev, Neven T., 2005. "Is the proposed East African Monetary Union an optimal currency area? a structural vector autoregression analysis," World Development, Elsevier, vol. 33(12), pages 2119-2133, December.
    5. Cheikbossian, Guillaume, 2002. "Seigniorage, Delegation and Common Currency: Why Monetary Unions May Fail?," Public Choice, Springer, vol. 112(3-4), pages 305-318, September.
    6. Burcu Aydin, 2010. "Exchange Rate Assessment for Sub-Saharan Economies," IMF Working Papers 10/162, International Monetary Fund.
    7. Guillaume Cheikbossian, 2001. "When a Monetary Union Fails: A Parable," Open Economies Review, Springer, vol. 12(2), pages 181-195, April.
    8. Willem H. Buiter, 2010. "Economic, Political and Institutional Prerequisites for Monetary Union Among the Members of the Gulf Cooperation Council," Chapters,in: Currency Union and Exchange Rate Issues, chapter 3 Edward Elgar Publishing.
    9. Michael D. Bordo & Lars Jonung, 1999. "The Future of EMU: What Does the History of Monetary Unions Tell Us?," NBER Working Papers 7365, National Bureau of Economic Research, Inc.
    10. Xavier Debrun & Catherine A Pattillo & Paul R Masson, 2010. "Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa," IMF Working Papers 10/157, International Monetary Fund.
    11. Geeta Kingdon & Justin Sandefur & Francis Teal, 2006. "Labour Market Flexibility, Wages and Incomes in Sub‐Saharan Africa in the 1990s," African Development Review, African Development Bank, vol. 18(3), pages 392-427.
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    Cited by:

    1. 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.
    2. Luis Alberiko Gil-Alaña & Borja Balprad & Guglielmo Maria Caporale & Hector Carcel, 2015. "Exchange Rate Dynamics and Monetary Unions in Africa: A Fractional Integration and Cointegration Analysis," NCID Working Papers 11/2015, Navarra Center for International Development, University of Navarra.

    More about this item


    Africa; Burundi; common currency; EAC; Kenya; monetary union; regional integration; Rwanda; Tanzania; Uganda;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration

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