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- May 11, 2013
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The use of the dollar in regional trade is expected to fall after the central banks of the five East Africa Community member states agreed on direct convertibility of national currencies, to protect them from weakening against the green buck.
The move will enable traders transact without having to convert national currencies into dollars first as the central banks seek to cushion businesses from foreign exchange shocks that accompany dollar movements.
This will be the second major onslaught on the dollar in the region after the setting up of Chinese currency Renminbi — commonly known as the Yuan — clearing houses in key African capitals and the opening of individual yuan accounts by Standard Bank of South Africa which is 20 per cent owned by the Industrial and Commercial Bank of China (ICBC).
The central banks have already opened reciprocal accounts with each other, the basket from which payments of dues in a different currency are made.
“To facilitate the East African Payment System [EAPS] the central banks had to open a set of accounts in their respective jurisdictions,” a source privy to the operations of the EAPS told The EastAfrican.
This means that the Kenyan, Ugandan and Tanzanian shillings; Rwandan and Burundian francs will be freely inter-changeable.
READ: Key Bills on East African single currency complete
ALSO READ: EA currencies to fall further against dollar
Regional currency convertibility was one of the preconditions for the operationalisation of the EAPS launched in May 2014.
The reciprocal accounts are part of efforts by the East African monetary authorities to promote the use of regional currencies ahead of the implementation of a single currency under a Monetary Union by 2024.
“This project is part of the integration and convertibility of regional currencies before the monetary union.
Regional central banks have gone quite far on this project. It will facilitate intra-regional trade and support banks operating regionally,” said Kenya’s Principal Secretary in charge of EAC Affairs Betty Maina.
The EAPS links the real time gross settlement systems (RTGS) systems of the central banks of Uganda, Kenya, Rwanda and Tanzania via SWIFT to allow transfers of funds in regional currencies.
Burundi is yet to join this arrangement as the country has not developed its own RTGS system, while the new entrant South Sudan which joined the EAC bloc in March this year is yet to catch up with its counterparts in regional development initiatives.
EAC traders to use local currencies within region
The move will enable traders transact without having to convert national currencies into dollars first as the central banks seek to cushion businesses from foreign exchange shocks that accompany dollar movements.
This will be the second major onslaught on the dollar in the region after the setting up of Chinese currency Renminbi — commonly known as the Yuan — clearing houses in key African capitals and the opening of individual yuan accounts by Standard Bank of South Africa which is 20 per cent owned by the Industrial and Commercial Bank of China (ICBC).
The central banks have already opened reciprocal accounts with each other, the basket from which payments of dues in a different currency are made.
“To facilitate the East African Payment System [EAPS] the central banks had to open a set of accounts in their respective jurisdictions,” a source privy to the operations of the EAPS told The EastAfrican.
This means that the Kenyan, Ugandan and Tanzanian shillings; Rwandan and Burundian francs will be freely inter-changeable.
READ: Key Bills on East African single currency complete
ALSO READ: EA currencies to fall further against dollar
Regional currency convertibility was one of the preconditions for the operationalisation of the EAPS launched in May 2014.
The reciprocal accounts are part of efforts by the East African monetary authorities to promote the use of regional currencies ahead of the implementation of a single currency under a Monetary Union by 2024.
“This project is part of the integration and convertibility of regional currencies before the monetary union.
Regional central banks have gone quite far on this project. It will facilitate intra-regional trade and support banks operating regionally,” said Kenya’s Principal Secretary in charge of EAC Affairs Betty Maina.
The EAPS links the real time gross settlement systems (RTGS) systems of the central banks of Uganda, Kenya, Rwanda and Tanzania via SWIFT to allow transfers of funds in regional currencies.
Burundi is yet to join this arrangement as the country has not developed its own RTGS system, while the new entrant South Sudan which joined the EAC bloc in March this year is yet to catch up with its counterparts in regional development initiatives.
EAC traders to use local currencies within region