Author Topic: Common East African Currency Planned  (Read 4706 times)

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Offline Bimat

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Common East African Currency Planned
« on: October 29, 2011, 07:16:27 PM »
Negotiations for East African Monetary Union on next week

ARUSHA, Tanzania, October 28, 2011/African Press Organization (APO)/

[...]

The Task Force will also negotiate provisions on the name and status of the single currency envisaged for the EAC, as well as provisions on the determination of conversion rates, conversion and redenomination of existing legal instruments and bank notes and coins to be issued by the proposed East African Central Bank (EACB).

After the Customs Union and the Common Market, the Monetary Union is the third stage in the integration process of the EAC bloc, which ultimately aspires to a Political Federation. The EAC Summit of Heads of State has set a 2012 deadline for the achievement of the Monetary Union, and EAC Secretary General Amb. Richard Sezibera has on different occasions reiterated EAC's commitment to have the Monetary Union Protocol concluded within the set timeline.

Deputy Secretary General Dr. Bukuku on his part notes that the Monetary Union will help mitigate price instability and exchange rate volatility in the region, which would be a boon for businesses and ultimately promote investment and spur development.

[...]

Determination of Conversion Rates (Article 37)

Conversion rates would need to be fixed by a binding act in order to benefit from general application. The process should involve the proposed institution to undertake such preparatory work or the EACB itself, as appropriate. The fixing of the conversion rates should be on the basis of prevailing exchange rate relationships since it would be difficult to use this occasion for a final realignment.

[...]

Bank Notes and Coins (Article 39)

This provision would confer sole legal tender status on the banknotes and coins issued by the EACB and would entitle the Community to set a date by which banknotes and coins in the legacy currencies would cease to be legal tender in the single currency area. The Partner States would be committed to ensuring adequate sanctions against counterfeiting and falsification of the banknotes and coins of the EACB.

[...]

Source: Star Africa
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Offline chrisild

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Re: Common East African Currency Planned
« Reply #1 on: December 01, 2013, 12:03:16 PM »
The governments of five East African countries have just signed an agreement about a customs union (probably as from next year) and a common currency, to be introduced within the next years, by 2023 maybe. The Heads of state/government from Burundi, Kenya, Rwanda, Tanzania und Uganda - countries that already cooperate in the East African Community (EAC) - agreed on those plans at the EAC summit conference in Kampala yesterday.

Here is a news article in German ...
http://www.tagesschau.de/ausland/ostafrika-waehrung100.html

... and this is the official communiqué in English (all caps ...) as a PDF download:
http://www.eac.int/news/index.php?option=com_docman&task=doc_download&gid=353&Itemid=73

Christian
« Last Edit: December 11, 2013, 07:02:15 PM by Afrasi »

Offline chrisild

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Re: Common East African Currency Planned
« Reply #2 on: December 01, 2013, 02:02:49 PM »
Two articles in English:

East Africa Takes Step Toward Single Currency
http://online.wsj.com/news/articles/SB10001424052702303332904579230004056818752
(longer, but apparently behind a paywall)

Five east African countries agree to common currency
http://www.iol.co.za/business/news/five-east-african-countries-agree-to-common-currency-1.1614939
(shorter but accessible)

Christian

Offline Enlil

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Re: Common East African Currency Planned
« Reply #3 on: December 01, 2013, 10:16:46 PM »
They have been going on about this for a few years now, I doubt it will happen. Thanks for the post anyway.

Offline Figleaf

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Re: Common East African Currency Planned
« Reply #4 on: December 01, 2013, 11:53:29 PM »
People always underestimate how much trust and co-operation a customs union takes. They haven't a clue how much willingness to give up national sovereignty it takes to create a voluntary, self-adminstered common currency. They are with their hands deep into the ground when it comes to realising how fast corruption can undermine both. They look at the benefits and disregard the requirements.

Peter
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Offline augsburger

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Re: Common East African Currency Planned
« Reply #5 on: December 03, 2013, 10:50:19 AM »
There have been other currency unions in Africa right? How have they worked out?

Offline Figleaf

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Re: Common East African Currency Planned
« Reply #6 on: December 03, 2013, 12:00:23 PM »
Yes, the CFA franc, which still works because France pays the cost and runs the system. Note the words "voluntary" and "self-administered" in my reaction above.

Peter
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Offline Ukrainii Pyat

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Re: Common East African Currency Planned
« Reply #7 on: December 03, 2013, 02:49:55 PM »
There has been discussion in Arabian/Persian Gulf region of currency union - I think is not likely to happen soon, but more likely than E. Africa.

Because of France supporting the CFA - it is pegged to the Euro.  It prevents the inflation that would otherwise result from these countries issuing their own currency like toilet tissue to pay for their leaders extravagances.  Think Zimbabwe.
Донецк Украина Donets'k Ukraine

Offline chrisild

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Re: Common East African Currency Planned
« Reply #8 on: December 03, 2013, 03:32:25 PM »
While I don't think it is fair to equate every BEAC and BCEAO country with the extreme case of Zimbabwe, the current CFA "setup" is far from being a currency union. Some critics even say it is a continuation of the colonial system (German Wikipedia link). The East African currency would, at least according to the EAC plans, not be dollarized or pegged to any other currency. Now whether it becomes reality ...

Christian

Offline augsburger

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Re: Common East African Currency Planned
« Reply #9 on: December 03, 2013, 03:59:05 PM »
How have these countries fared with inflation and economic problems? You'd think that only countries that are economically stable would consider this, and economically stable countries would never, ever consider letting in unstable countries like, say, Greece into the same currency union as them.

Offline chrisild

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Re: Common East African Currency Planned
« Reply #10 on: December 03, 2013, 04:28:51 PM »
As pointed out in the initial message, the five do not plan to introduce a common currency tomorrow but in ten years. Whether it will work by then, or later, or never ... we'll see. ;) And assessments are always difficult, especially when a government that wants to get in is supported by creative accounting experts. Whether Goldman Sachs or some other investment services company would play a similar role in the case of East Africa, can only be guessed either. Even the customs union, to be set up next year, sounds quite ambitious ...

Christian

Offline Figleaf

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Re: Common East African Currency Planned
« Reply #11 on: December 03, 2013, 05:05:47 PM »
You are projecting the euro on the CFA franc, which is dead wrong. These are simple and very small economies, completely dependent on the world economic climate and the price of the agricultural goods they produce most. Unemployment is so high it doesn't count as an economic goal any more. The inflation rate is stable, but growth depends on exports and domestic violence. If you need a battery of economic experts, mostly disagreeing, to steer the EUR, GBP, USD or JPY economy, you might control the CFA-franc economies with one highschool economics teacher if there weren't mouths to feed and enemies to beat back.

The whole system is an artificial mechanism controlled from Paris, where all the big cheques are payable. The minister of finance is a relative of the president. He and the president are pampered, while the minister's advisor is a civil servant from Paris, who takes the decisions. The exchange rate is fixed, the interest rate (and, some say, the inflation rate) is set in Paris. The army doesn't get a bloated budget, also because the foreign legion sees to it that the right guy remains president. I am exaggerating, but not by all that much.

The results are marginal. Ivory Coast used to be one of the best performing countries in Africa when Houphouet-Boigny was dictator. It drifts along with the rest now. Mali used to be one of the poorest countries on earth. Part of it does better now, because South American drugs smugglers use it as a staging point for flying drugs into Southern European countries. Another part is devastated by extremist islamist who have escaped from Libya, touaregs at odds with the rest of the world and the French army, driving both out. Sort of.

At best, the system has not contributed to the common African vicious cycle of revolts and tribal conflicts, letting all important clans get rich in turn so their clan elders can retire somewhere outside Africa. It may have prevented excessive killing sprees. At worst, it is preventing nominally independent countries from finding their own way. It is neither a success, nor a failure. Just not a solution.

Peter
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Offline Ukrainii Pyat

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Re: Common East African Currency Planned
« Reply #12 on: December 04, 2013, 01:06:46 PM »
You are projecting the euro on the CFA franc, which is dead wrong. These are simple and very small economies, completely dependent on the world economic climate and the price of the agricultural goods they produce most. Unemployment is so high it doesn't count as an economic goal any more. The inflation rate is stable, but growth depends on exports and domestic violence. If you need a battery of economic experts, mostly disagreeing, to steer the EUR, GBP, USD or JPY economy, you might control the CFA-franc economies with one highschool economics teacher if there weren't mouths to feed and enemies to beat back.

The whole system is an artificial mechanism controlled from Paris, where all the big cheques are payable. The minister of finance is a relative of the president. He and the president are pampered, while the minister's advisor is a civil servant from Paris, who takes the decisions. The exchange rate is fixed, the interest rate (and, some say, the inflation rate) is set in Paris. The army doesn't get a bloated budget, also because the foreign legion sees to it that the right guy remains president. I am exaggerating, but not by all that much.

The results are marginal. Ivory Coast used to be one of the best performing countries in Africa when Houphouet-Boigny was dictator. It drifts along with the rest now. Mali used to be one of the poorest countries on earth. Part of it does better now, because South American drugs smugglers use it as a staging point for flying drugs into Southern European countries. Another part is devastated by extremist islamist who have escaped from Libya, touaregs at odds with the rest of the world and the French army, driving both out. Sort of.

At best, the system has not contributed to the common African vicious cycle of revolts and tribal conflicts, letting all important clans get rich in turn so their clan elders can retire somewhere outside Africa. It may have prevented excessive killing sprees. At worst, it is preventing nominally independent countries from finding their own way. It is neither a success, nor a failure. Just not a solution.

Peter

The CFA Franc is pegged to the Euro at a fixed rate of exchange - in effect it is a guaranty of value.  Other than that small point I agree with the rest of what you say.  I find it sort of difficult to not see it as an extension of colonial practice, particularly so since all of these countries have now been otherwise independent for more than half a century.  Mali did leave the CFA franc for awhile, but then went back in the early 1980s.
Донецк Украина Donets'k Ukraine

Offline Figleaf

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Re: Common East African Currency Planned
« Reply #13 on: December 04, 2013, 01:13:21 PM »
Not quite. The CFA franc's peg is not supported by the ECB, but by the Banque de France. If there is ever any trouble, BdF pays, lends, sends in experts etc.. There is even treaty language somewhere that says France can use the euro on the understanding that Paris guarantees that the ECB is not liable in any way for the currencies of former French colonies.

Peter
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Offline Enlil

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Re: Common East African Currency Planned
« Reply #14 on: December 24, 2013, 12:02:20 AM »
The best African currencies would be the Botswanan Pula and South African Rand, but am not sure about their total independence and reliability on the one section of the economy, that be mining.