Will a Single currency benefit East Africa?
|The Kenya shilling: used by |
nearly 60 million people in the bloc
Will a monetary union benefit the East Africa Common Market? Can it succeed? These are questions many “an expert and observer” have asked in the recent past. The economic conditions in
East Africa, says critics, are not favourable for a
Monetary Union come mid–next year.
The experts do not foresee the bloc being ready for a monetary
Union until after 2015. What are the
problems cited: Weak domestic currencies, rising inflation, economic disparity
within the member-states and among the states and general
unpreparedness-whatever that means.
|The Tanzanian Currency: |
the third weakest currency in EA
Just the same problems the pro- monetary union lobby says a single currency would solve. The single–currency school accuses the critics of “crying wolf.” Of creating mountains out of Mole hills.To be sure, the single -currency school avers, inflation in East Africa is high, ranging between 19.8 per cent per year in
to 31 per cent in .
However, a closer look at the drivers of inflation shows that they are temporary in nature. A prolonged drought in the region resulted in food shortages which in turn send, food prices skyrocketing. The other driver is high crude prices in the international market. To some extend the debt crisis in
weakened our currencies as demand for the green buck in the international
But these conditions are reversing: the rains are pouring heavily; Crude prices in the world market have turned south and the panic caused by the debt crisis in
With all conditions looking north the currencies are now recovering their foot hold against the green buck. Even the
recently, billed the worst performing currency in the world against the US
dollar has turned round. It is now billed as the best-performing currency in
the world against the US dollar. Kenya
The trend in
East Africa is;
good rains lead to the collapse of food prices and consequently, food-driven
inflation. Unless the debt crisis in Europe
spins out of control, demand for the green back has declined and local
currencies are revaluing. These coupled with the decline in crude oil prices
are a recipe for a decline in inflation. Experts are now looking at single
digit inflation by the end of Q1 next year.
Such developments, says the pro-School, nullify pessimists’ argument of
volatile economic conditions.
They cite the example of the
shilling which almost the official currency in large parts of Tanzania, Uganda
If for argument’s sake, the shilling were to become the official currency in
the region, what would happen to domestic prices across the board? Somalia
for instance, prices would decline by nearly 322 per cent so that items that
cost 100s of shillings would cost in the 10s of shilling. Those that cost tens
of thousands would come down to hundreds. In Tanzania Uganda,
prices would decline by 783 per cent while in Rwanda
the price declines would range between 35.4 and 30 percent. Burundi
In effect, the domestic prices of goods and services will be re-valued and so would the wealth of the region.
shilling is used as a store of value and also for trade in the region. One can
book a Middle level Hotel in Arusha and Moshi and other parts of Kenya Tanzania that border Kenya
shilling. One can also buy a pack of cigarettes at the Kiosk across the street
The same is the case in
The stronger Somalia
shilling is valued as a means of exchange and a store of value. We are talking
about ordinary vendors on the street not a savvy businessman in a stripped
The upshot here is: East Africans know a stronger currency when they see it and they use it for business. So we might say that the small business man in East Africa has contributed to the weakening of their domestic currencies by preferring the
shilling to their domestic currency. Kenya
The implication is: a stronger foreign currency is preferable to a weak domestic currency. Even in
, some ambitious people prefer
holding the US dollar to the local currency which they consider volatile. Kenya
A stronger East African currency would probably be stronger than the
shilling. This would mean that the GDP of the region would be revalued in terms
of the domestic currency and inflation would dip. Kenya
Just imagine. How would a currency used by 130 million people affect: consumption, production and employment creation in the region? How would it affect the competitiveness of our exports to the world market? How would it affect regional foreign debt? How would it affect debt service especially in the weaker economies? Think about it.