Last year at the launch of the East African Community Common Market, we wrote on the impending currency the trading bloc hoped to introduce in 2012. However with the debt crisis afflicting the Eurozone at present, how plausible would a single currency be in the EAC? I give 3 reasons why it maybe should be kept on the theortical counter for the foreeable future.
1. The Kenyan Shilling has been among the worst performing currencies in the world this year, depreciating constantly with the US $. This has been because of inflationary pressures in the country, forcing the monetary authorities to purchase dollars and increase interest rates to tame overheating. In a single currency system, Kenya would not have the possibilities to address domestic concerns, and as they are the biggest economy in the bloc,they could wield unfair influence on the other states, creating problems there.
2. Elections have an effect in African economic performance. Yoweri Museveni won his elections in February this year, but post his reinstatement, inflationary pressures and demonstrations have forced him to forego prudent macro-economic discipline, in a single currency system, a replication of this would plunge the whole bloc into a position similar to Portugal in the Euro. Kenya goes to the polls in August 2012, and despite the new constitution, the PNU may also begin to purchase patronage to secure victory, hence draining the national coffers.
3. Impending talks from South Sudan to join the bloc mean they too would want to eventually have access to joining the currency, especially as they try move from the orbit of the North. As an oil producing state, and a country building from scratch,the inflationary pressures they will create will not just affect a unitary currency, but the common market itself.