Sunday, March 15, 2015

IMF: New Monetary Union in East Africa Underway

We have noted on the blog here that a trend around the world is the formation of regional monetary unions. These unions often result in a new single currency for an entire regional area. The EU, of course, is the most well known example. But other similar arrangements are in progress. They do not move quickly, but they are in progress. This link will take you to an IMF podcast about the effort to build a new monetary union in East Africa.

Here is the description of the podcast from the IMF Direct blog:

"It’s like the European Union but for East Africa.
In this podcast by the IMF, find out how Uganda, Kenya, Tanzania, Rwanda and Burundi stand to benefit from the creation of the East African Community.  There will be a common currency as well as more trade and investment too.  Will a union also expose them to more risk?
These five countries have already seen some benefits from regional integration.
“It took more than three weeks to move goods from Kenya or Tanzania to Uganda; now it takes four to six days,” said the IMF’s Oral Williams, one of the editors of a recent book on the East African Community.
Maybe Europe should take a page out of Africa’s playbook.  Listen and decide for yourself."
If the world financial system holds together without a new major global crisis, these regional unions are likely to evolve slowly but surely. The AU (African Union) is another example and a bigger one. A smaller one is the Eurasion Union.

One view of the future projects a new global reserve currency (perhaps the SDR used at the IMF) some day. But another view might be simply a steady progression of regional unions that unfold over many years and even decades.

A lot depends on whether or not we get another major global financial crisis, and if we do, how the world reacts to it. A lot of unknowns there. When you face a future with a lot of unknowns, it's a good idea to stay informed and have as much flexibility as possible in your financial planning.  We will try to help with the staying informed part here.

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