Creating a monetary union for the East Africa Community requires extensive institutional preparation as well as convergence among the region’s economies. The experience of the euro zone shows the need for putting in place adequate safeguards against excessive fiscal deficits and debt. Despite a long period of institution building and many resources invested in preparing the monetary union, the euro zone currently faces a crisis that threatens its continued existence. Given that the EAC is at a much earlier stage in regional integration than was the European Union at the time of the signing of the Maastricht Treaty, it is unlikely that the EAC could create a full-fledged currency union that was effective in creating a zone of monetary stability in much less than a decade.

The objective of this paper is to contribute to the few studies on EAMU by assessing the viability of the EAC common currency and by considering how best to bring it about.

Monetary union in the East African Community (EAMU) needs to be seen in a wider context of EAC integration. Rwanda has much to gain from freer trade with her neighbours, investment in regional infrastructure, and access to a larger market for goods and services. If these were to be jeopardized by a failure to join EAMU--assuming it goes ahead—then there would no doubt be a net loss for Rwanda. But monetary union itself is unlikely to be very positive, and indeed may have negative consequences for Rwanda in some circumstances. The gains derive from the reduction of transactions costs from the use of a common currency within the EAC, as well as the possibility a regional central bank would deliver a more stable currency than national central banks.