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

Thomas Rusuhuzwa and Paul Masson

Working Papers from University of Toronto, Department of Economics

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.

Keywords: EAC monetary union; fiscal surveillance; optimum currency areas; parallel currencies; regional integration (search for similar items in EconPapers)
JEL-codes: E42 E58 E61 F33 F55 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2012-04-04
New Economics Papers: this item is included in nep-afr, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
https://www.economics.utoronto.ca/public/workingPapers/tecipa-451.pdf Main Text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-451

Access Statistics for this paper

More papers in Working Papers from University of Toronto, Department of Economics 150 St. George Street, Toronto, Ontario.
Bibliographic data for series maintained by RePEc Maintainer ().