East African Community (EAC) is set to decide core details about the launch of the proposed regional central bank later in the year.
The details to be decided in 2023 include the location of the proposed central bank and when it would be launched, the secretary-general of the organization, Peter Mathuki, disclosed.
The establishment of the regional central bank is envisioned to form a crucial assistance to East African Community as regards the attainment of its goal— creating a single currency regime in three years.
The plan to launch a regional central bank has been in the works for a long time, and EAC seems closer to realizing this goal than in previous weeks and months.
Mathuki mentioned that the regional intergovernmental organization would decide when and where to locate the planned regional central bank in 2023. According to a report, the financial institution, which will be known as the East African Monetary Institute (EAMI), is seen as an establishment that is vital to implementing a single currency regime.
East African Community’s plan
The EAC secretary general Peter Mathuki stated the organization’s council of ministers is expected to deliberate on the location of the regional central bank. “The EAMI will be in place this year in what will allow us to harmonize member states’ fiscal and monetary policies, then in about three years we will have a common currency in place,” Mathuki reportedly said.
Immediately the regional currency is integrated, the Eastern African Community will edge closer to its goal of bolstering the market within the region. As a result, there will be an intense increase in intra-regional trade, reportedly valued at $10.17 billion in September 2022.
EAC consists of seven African countries. By 2024, the community hopes to have created a single currency for the region. Also, there are reports that community members have scouted other means to launch a central bank digital currency as a sufficient substitution for the moribund East African Payment System (EAPS).
However, in addition to its goal of easing and intensifying the movement of trade in the region, the leadership of EAC has deliberated on ways the organization can get rid of non-tariff barriers. The reports show that a startling sum of 257 non-tariff barriers (NTB) has been discovered since 2017.
What does a central bank mean?
A central bank is an authority in charge of policies influencing a country’s money and credit supply chain. In a specific conduit, a central bank incorporates monetary policy. This policy ranges from open market operations, discount window lending, and adjustments in reserve requirements.
Particularly, this monetary policy aims to influence short-term interest rates and the monetary base and achieve important policy goals.
Modern monetary policy aims to achieve three main objectives. Price stability or stability in the value of money comes first and is the most significant. These days, this implies preserving a stable low inflation rate.
The second objective is a stable real economy, frequently defined as high employment and rapid and sustainable economic growth. Another way to describe it is that monetary policy is anticipated to moderate business cycle fluctuations and counteract economic shocks. Financial stability is the third objective. This includes an effective and seamless payment system and the avoidance of financial catastrophes.
Financial stability is an increasingly significant duty for central banks. The development of this duty has been consistent among the developed nations.
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