East African Monetary Union

Abstract

This chapter highlights progress with the East Africa Monetary Union (EAMU) and the implications for the future of central banking in the Eastern African region. In 2013, East African countries committed to move to a monetary union by 2024. However, monetary unions offer benefits as well as challenges, given the experience in European Monetary Union. The chapter highlights four main important issues: the imperative of extensive economic integration in order to reap benefits from EAMU; the need for strong, enforceable, but feasible rules to ensure the fiscal sustainability of each partner state, given that once EAMU is established, they will no longer have the option of financing their public debt from their own central banks; the mechanism for alignment of the exchange rates in the period prior to the introduction of the common currency; and how to mitigate the adverse impact of asymmetric macroeconomic shocks within the EAC.