Cowrie shells to plastics: the history of currency in East Africa

A picture of beads.  Photo/FILE

In Summary

• The groundwork for this was laid two weeks ago when the leaders of Kenya, Uganda, Tanzania, Rwanda and Burundi signed a Monetary Union Protocol that will culminate in the launch of the regional currency.
• The unit has been touted as a logical economic step as the region inches closer to an integration that is expected to finally yield a political federation.
• Some have, however, pointed out that the plan is fraught with Euro-type pitfalls.

By KIARIE NJOROGE
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When Francis Njehia first set foot in Uganda a few years ago to begin his university education, the amount of money in his pocket felt unreal.

It was mind-boggling just paying USh10,000 just for a cab ride when back home in Nairobi he would have paid Sh500.

Although the arithmetic made sense, his mind simply refused to accept this as normal, and it would be months before he accepted that he would have to part with what seemed like a fortune every time he wanted a soda.

In the next 10 years, however, politics and economics notwithstanding, Njehia might not get the heebie-jeebies every time he orders a soda in Kampala, as the region is poised to have a regional currency, more than 50 years after the East African Shilling became obsolete.

The groundwork for this was laid two weeks ago when the leaders of Kenya, Uganda, Tanzania, Rwanda and Burundi signed a Monetary Union Protocol that will culminate in the launch of the regional currency.

The unit has been touted as a logical economic step as the region inches closer to an integration that is expected to finally yield a political federation.

“It will eliminate the costs attendant to juggling different currencies, thereby reducing transaction costs,” said President Uhuru Kenyatta after the event, held in Uganda.

“Businesses will find more freedom to trade and invest more widely, and foreign investors will find additional, irresistible reasons to pitch tent in our region.

POSSIBLE PITFALLS

Such advantages will no doubt result in increased investment and further transformation of East Africa.”

Some have, however, pointed out that the plan is fraught with Euro-type pitfalls.

But, although many reasons have been advanced for the problems that have rocked the region, some experts point out that the Euro wasn’t the problem per se, but a failure by the Eurozone to effectively harmonise economic and fiscal rules before launching the single currency.

To deal with these, the 10-year period is meant to see the countries harmonise the most critical indicators; inflation, fiscal deficit, interest rates, foreign currency reserves and debt.

And those 10 years, according to some experts, are sufficient to lay the strongest foundations for a regional currency.

One of those optimists is Nikhil Hira of Deloitte, who says that, given that all countries are growing, “it is likely that we will see considerable convergence over the next 10 years”.

 

FINANCIAL CONTROLS

Before the currency is born, however, member countries will have to maintain inflation at eight per cent, keep fiscal deficit under three per cent of their GDP and gross public debt under 50 per cent of the GDP, while at the same time maintaining a reserve cover for 4.5 months of imports.

The new currency will mean that countries will surrender a lot of financial controls to regional regulatory bodies, with the head of the East African Central Bank wielding vast powers over an economy of more than the current 120 million souls.

On the ground, however, a significant number of border moneychangers are likely to look for alternative means to earn a living.

Since 1966, when the Kenya Shilling was launched, trade in currency has been thriving, and for border towns like Busia, Malaba and Namanga, this will be the end of an era of sorts.

In many ways, the new unit will be a throwback to nearly five decades ago, when Kenya, Uganda and Tanzania still had the regional shilling and experimented with the infamous Lake Victoria money.

Whether the unit will adopt the name of its ancestor, the East African Shilling, remains to be seen.

And while the three countries use their respective shillings, Rwanda and Burundi use the franc, and it is not automatic that the name would revert to the earlier shilling.

WHO'S ON YOUR MONEY?

It might also be challenging choosing images for the money that are representative of the region.

The Lake Victoria Money may have used the background of the lake, which links the three countries as a compromise, but times have changed, and it is not clear whether East Africa has a personality or common grain strong enough to be ingrained in the psyche of all its people.

In this regard, the currency might be the most tangible evidence of the integration, which to most has only existed in news bulletins.



COMMON MARKET

What is not in doubt, however, is the expanded business opportunity and ease of doing business this will bring.

The preceding common market and customs union protocols will certainly have made things easier in 10 years.

“I’m just imagining a situation where every time I cross borders, I don’t have to change money,” says Margaret Wahito, who crosses the borders regularly to buy or sell clothes.

“I look forward to the day when I will be able to use my credit or debit card to pay for my transactions and accommodation in the other countries, and receive money through mobile services without having to deal with conversions or forex bureaus.”

The phasing out of the Kenyan shilling will undoubtedly ignite some nostalgia despite the turmoil the local unit has sometimes taken the economy through, particularly the depreciation phases of the 1990s and, most recently, 2011.

But in just the same way people’s faces brighten up on seeing the long-withdrawn Sh10 and Sh20 notes, the shilling will become a piece of Kenya’s long currency history.

Not to worry though, because there is a 10--year period in which to collect enough memento notes and coins!