Monetary Integration Case Study

The East African Community was initially formed in 1967, only to be dissolved in 1977 due to a myriad of challenges. By the time of its dissolution, it had achieved very deep levels of integration to the extent of being touted as a global model for regional integration. It was later revived through a treaty signed on 30 November 1999. The revived EAC largely borrowed from Balassa’s stages of economic integration in coining its objectives, that is, to become a customs union, then common market, then monetary union and eventually a political federation. Possibly borrowing from the previous high levels of integration, the revived EAC has been rated the best performing REC in Africa on regional integration.

Monetary integration is a sub-set

Delor (1989) defines it as a currency area in which policies are managed jointly with a view to attaining common macro-economic objectives. AlKholifey and Alreshan (2010) define it as a geographic area whose exchange rates are irrevocably fixed to each other. Rosa (2004) defines it as an agreement among states where they agree to share a common currency, and a single monetary and foreign exchange policy. de Vanssay 2002) notes that it is a situation in which several countries agree to share a single effective currency, a single monetary policy and a single effective exchange rate, with formal union taking place under one of four possible regimes: A supra-national, union-wide central bank (such as the European Central Bank) where the shareholders are the national central banks of the countries making up the union; a single central bank for all members of the union (such as Switzerland and Liechtenstein’s solution, with the central bank located in Switzerland); more than one multinational central bank (such as the Franc zone in Africa which has two multinational central banks); or no multinational central bank(s), but multiple national central banks (for example, the Latin monetary union between France, Belgium, Switzerland, Italy and Greece [1865-1920]). Bordo and Jonung (1999) also note that monetary unions emerge when independent nation states link their monies together through a fixed exchange rate so that one country’s money is perfectly exchangeable for that of another member country’s at a fixed