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Region in fresh push for Monetary Union Protocol
The implementation of the EAC Monetary Union Protocol have gathered fresh impetus after Rwanda joined an ambitious cross-border payments system last month, which aims at speeding up payments and promoting trade within the region.
The East African Payments System (EAPS), which went live on November 25 last year, links the Real Time Gross Settlement Systems (RTGSs) of the EAC member countries.
“We have now brought on board Rwanda, which joined in October. Burundi is still implementing its RTGS and once they are ready they will also join,” said Stephen Nduati, the head of the National Payments System at the Central Bank of Kenya.
The integrated regional payment system, which was officially launched in May this year by the governors of the region’s central banks is part of the economic integration drive, which seeks to among other things connect the EAC member countries through a single currency by 2024.
The regional heads of state signed the Monetary Union Protocol in Kampala on November 30, 2013 setting a 10-year roadmap towards the realisation of the single currency.
Mr Nduati said the cross-border payment infrastructure is now operational in Kenya, Uganda, Tanzania and Rwanda.
“It is an efficient and secure means of transferring money across the region linking the RTGSs of the four countries through their respective central banks,” said Mr Nduati.
EAPS is a multi-currency system in which payments are effected using any of the currencies of the EAC partner states.
According to Mr Nduati, the payment platform makes it easier for East African citizens to do business and transfer as much as $5 million within the region at a cost of only $5.
Louis Kasekende, the Deputy Governor of the Bank of Uganda said it will make cross-border payments easier, and facilitate safe and efficient transfer of funds within the region.
“EAPS will also be vital in promoting regional trade and enhancing economic integration,” said Dr Kasekende.
The system sends and receives cross-border payments in the region’s currencies: Kenyan shillings, Tanzanian shilling, Ugandan shillings and now Rwandan francs from any of the commercial banks in the four countries in real time.
According to the International Monetary Fund, the formal launch of the EAC payments system is a significant step in enhancing monetary and economic integration in a region with a population of about 140 million and a combined GDP of more than $100 billion.
The Monetary Union Protocol sets out the process and legal and institutional framework for the establishment of a single currency, including macroeconomic convergence criteria.
Joint monetary policy will be governed by an independent EAC central bank with a system of national central banks as its operational arms.
To qualify, countries are expected to meet the convergence criteria and comply with them for at least three years.
The primary convergence criteria are ceilings on headline inflation (eight per cent), fiscal deficit including grants (three per cent of GDP), gross public debt (50 per cent of GDP in net present value terms) and a floor on reserve coverage (4.5 months of imports).
In addition, there are three indicative criteria including ceilings on core inflation (five per cent) and the fiscal deficit excluding grants (six per cent of GDP); and a floor on the tax-to-GDP ratio (25 per cent).
The EAPS project is an integral element of the overall infrastructure and technological platform required to support the proposed East African Monetary Union to function effectively.
It will also contribute to managing the convertibility of the EAC partner states’ currencies in the region.
