As the East African Community (EAC) inches closer to a political federation - scheduled to become a reality by 2015 - the issue of the region's monetary union continues to spur debate, with stakeholders urging caution over the move.
Rwanda, for instance, will not rush into a single currency zone, according to the minister in charge of East African Community affairs, Monique Mukaruliza, who says a crisis could arise if matters moved very fast in the achievement of a monetary union for the EAC five-member countries.
“It will depend on how it benefits us in terms of economic transactions with other regional members, otherwise for us we shall not rush," Mukaruliza said. "We need a monetary evaluation mechanism to ensure proper usage and avoid crisis that might arise in the region."
According to EAC's integration plan, the region is scheduled to have a single currency by the end of 2012 but observers and analysts say it is doubtful that this will be achieved.
Ugandan legislators recently called for a delay in the establishment of a single currency until "some issues" are sorted out. They argued that fast-tracking the single currency issue when loopholes remained in the region's Customs Union and Common Market protocols, that have already been passed.
News outlets quoted Betty Ochan, the MP for Gulu, northern Uganda, as saying: “Some of the principles in the treaty are confusing; we should not rush the issue of monetary union yet other issues like movement of labour and capital are still questionable.”
The legislators said some of the modalities that need to be discussed and agreed upon before the single currency is actualized include domestic and external debt management frameworks, joint financing of projects, macro-economic convergence, harmonization and coordination of fiscal policies, taxation and customs and national budget formulation processes.
Agreeing with the Ugandan legislators and Rwanda's position, Paul Collier, a scholar at Oxford University, said EAC member countries are better off without a monetary union.
Speaking in Entebbe in November, Collier said countries such as Burundi and Rwanda, Collier said, were likely to raise inflationary concerns in relation to Uganda's recent oil discovery in parts of the country.
He warned that the likelihood of oil-induced volatility in Uganda could have a ripple effect effect on the regional currency.
Commodity prices, Collier said, would shoot up in tandem with the high oil prices, making it difficult for other partner states to share the same currency with Uganda, whose inflation will then be riding on a high tide occasioned by high and fluctuating oil prices.
However, EAC sources argue that the Treaty under wich the regional body was established is silent on "salient issues", including matters of fiscal convergence, which are necessary for the monetary union to become a reality.
Despite pushing for a cautious approach over the single currency, Rwandan Minister Mukaruliza said it would be a great regional achievement if the monetary union was established as it would spur the region's economy.
Prof. Rama B. Rao, an economics and management professor at the National University of Rwanda, said if partner states were to effectively achieve and benefit from a single monetary union, there was need to learn lessons from other economic communities like Europe, where the Euro works.
George Gatera, a Rwandan businessman, told EANA that a single economic zone was important for regional trade.
“We always face the problem of exchanging money before we travel to other countries [within the region],” Gatera said.