East African Community (EAC) leaders are aspiring for a single currency by 2024, a development they say will see the countries ease doing business as opposed to the current situation where traders have to use dollars to do business in a partner state.
Uganda, Tanzania and enya are determined to merge their respective shillings with Rwanda and Burundian Francs to form the single legal tender for the bloc in the next seven years, the latest reports from EAC indicate. South Sudan will also lose its relatively valuable pound, melting Juba’s currency into the envisaged EA currency.
Reports on the process for the proposed Monetary Union (MU) for the six EAC member states show that the envisaged MU is expected in 2024, with the introduction of the common currency to replace the national currencies and establish a regional central bank-East Africa Central Bank (EACB).
“Transition to the EA Monetary Union (EAMU) is as a two-phase process, with the initial convergence phase enabling partners to work towards achieving preconditions designed to limit the union’s exposure to internal economic strains,” says EAC Principal Communication Officer Simon Owaka.
He says the preconditions as macroeconomic convergence criteria, full implementation of the Common Market protocol, establishment of institutions to support the MU and harmonisation of policies and practices.
“Once these preconditions are satisfied, partners will enter the final conversion phase, announcing a predetermined date for the union formation.”
According to the EAMU protocol, the EAC members have agreed on four primary convergence criteria, which all partner states have to attain and maintain for at least three years before joining the MU.
But, the targets have to be achieved by 2021 and there is therefore no reason to doubt that any of EAC state will fail to achieve the convergence targets in 2024.
Central Banks in Tanzania, Kenya, Uganda, Rwanda and Burundi have agreed to converge in terms of monetary policy regimes and exchange rate policies, moving from reserve money based framework to forward-looking price based monetary policy framework by December 2018.
“The Bank of Uganda has already taken bold steps, having introduced the Inflation Targeting Lite (ITL) in July 2011 and replacing the reserve money with interest rate as operating target. Kenya has also adopted the forward-looking approach to monetary policy, with a view to move towards inflation targeting,” said the EAC officer.
Central banks in the EAC states are currently implementing legal, regulatory and supervisory amendments in their national legal instruments to harmonise banking supervision and regulatory frameworks in the region.
Two policy documents have so far been developed to guide taxharmonisation process. The EACTax Treaty Policy was developed to provide guideline framework for future treaty negotiations by EACpartner states.
The EAC Model Tax treaty is expected to further develop partner states’ economic relationship and enhance cooperation in taxissues to eliminate double taxation without creating opportunities for taxevasion or avoidance.
The partner states have developed the draft Policy Framework for Domestic Tax harmonisation, which identifies possible areas for harmonisation and coordination as well as establishing the Regional Technical Working Group (RTWG) on harmonisation of national laws.