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The East African Shilling

By Edited Nov 13, 2013 0 0

The East African Shilling is a proposed common currency for the East African Community, a political and economic grouping of five states consisting of Kenya, Tanzania, Uganda, Rwanda and Burundi. Three of the states, Kenya, Uganda and Tanzania currently denominate their currency in shillings (Kenyan, Tanzanian and Ugandan shillings) while Burundi and Rwanda use the Rwandan and Burundian Franc. The names of each nation’s currency is a testament to their colonial history, with the first three being ruled by the British Empire and the latter two being under Belgian control.

The East African Shilling was common currency for a period of roughly forty years following the Second World War, when the three nations of Kenya, Tanzania and Uganda were ruled as colonies by the British Empire. The East African Shilling was regulated by the East African Currency board and was accepted as legal tender in the three above mentioned nations and as far away as Eritrea on the Red Sea coast of Africa. Following independence in the early 1960’s, each state started minting their own coins and naming them after the state itself. Diverging political and economic developments led to the break-up of the East African Currency board and to the erection of trade barriers between the 3 ex-colonies. This served to significantly hurt economic progress and by relation the standard of living for most of the population of the three new countries.

East African Shilling

Rwanda and Burundi followed a similar path after independence. The two colonies were previously both ruled and jointly administered by Belgium, which kept the traditional kings of Rwanda and Burundi as figureheads. After independence, both nations followed the path of their East African compatriots and started minting their own coins and issuing their own bills, which had similar effects on the local economy that the breakup of the East African Currency board had.

The revival of the East African Shilling is underway as the 5 nations of East Africa move closer and closer together in economic and political union. There is already a free trade zone between the five nations, and restrictions on work, investment and education are being dropped day by day. A central currency akin to the “Euro” in the European Union would help promote economic growth and integration in a market of over 120 million people.

There are however significant issues associated with a move to a common currency. As the Greek debt crisis shows, moving too fast towards monetary union can result in a major crisis. Burundi is the weakest economy in the region, and suffers from massive underinvestment and poverty while Kenya roars ahead in its development. Creating a common currency to cover such a disparate market will undoubtedly hurt some consumers and producers and could put a strain on the political side of integration.

In addition, wide disparities in exchange rates between the national currencies of the 5 nations of East Africa also look like they could cause significant problems. The Tanzanian shilling trades at 1500 to the US dollar while the Kenyan shilling trades at only 80 to the dollar. Keeping prices stable in such an environment can prove tricky with a single currency.

Whatever the negatives and positives are, the leaders of the 5 nations of East Africa seem set on creating a common currency along with their common market. The current prognosis is anywhere between 2012 and 2015 for the final launch of the new East African Shilling.


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