Geoffrey Irungu [Business Daily], 15 July 2010
African countries are keen on setting up a central bank to issue a single currency and harmonise monetary policies geared towards cutting costs of intra-continental trade and related transactions.
A single currency, for example, would reduce costs associated with foreign exchange fluctuations and eliminate commissions paid to forex dealers.
The central bank is supposed to promote exchange stability and avoid a situation where each country attempts to have competitive (depreciated) exchange rate with the intention of promoting its own exports.
Some countries conduct significant trade within the continent.
For example, half of Kenya's exports valued at Sh163 billion are sold within Africa while imports are at 13.3 per cent.
Within Comesa, Kenya exports 32.8 per cent and imports 3.2 per cent of its global total, increasingly making regional integration beneficial.
"The objective of [African Monetary Cooperation Programme] is to put in place a common single currency and a common single central bank at continental level by 2021 at the end of a successful convergence process, in accordance with the African leaders' vision of consolidating economic integration in Africa," said Central Bank of Kenya governor Njuguna Ndung'u.
However, an economist at the University of Toronto, Canada, Paul R. Masson, in a recent study, New Monetary Unions in Africa: a Major Change in the Monetary Landscape? doubted monetary union benefits.
"Africa has important initiatives to build regional currency areas and ultimately a single African currency. Calculations ... show that the proposed monetary unions are unlikely to yield net economic benefits for all countries,... even if trade doubles as a result of sharing a currency," Mr Masson said.
He said: "Countries that exhibit fiscal discipline would not want to join a monetary union with others that do not." African leaders have signed a treaty envisaging the integration of Africa through the strengthening of the sub-regional blocs and harmonisation of national policies.
Eastern Africa has made progress towards a monetary union with some members meeting some of the macro-economic convergence targets.
"We recently embarked on stage three (years 2009 to 2012) of the programme whose successful implementation ... will form a basis of the establishment of a continent wide common central bank," said Prof Ndung'u at the meeting of the Association of African central banks in Eastern Africa.
Journalists were locked out of the technical session presided over by a representative of Kenya's financial secretary Mutua Kilaka who represented the Finance minister, Mr Uhuru Kenyatta.
Prof Ndung'u said governors were also advising on the formation of a continental investment bank and a monetary fund.
Access to larger markets, enhancing trade flows and attracting foreign direct investment, increasing bargaining power and political cohesion are some of the benefits of integration seen elsewhere in the world, he said.
The African Central Bank would, among other things, promote international monetary cooperation, assist in establishing a multilateral system of payments, and eliminate forex restrictions.
Eastern Africa countries have committed themselves to maintaining a foreign exchange reserves at six months of import cover, a fiscal deficit of no more than six months and a single-digit inflation.
Inflation level is a key component of the criteria.
The National Bank of Rwanda (NBR) governor, Mr Francois Kanimba, has said inflation "is a reflection of many things among them the appropriateness of macroeconomic management policies."