EAC moves to phase out Dollar as cross-border medium of exchange

EAC moves to phase out Dollar as cross-border medium of exchange EAC heads in 2009. From left to right: Yoweri Museveni (Uganda), Mwai Kibaki (Kenya), Paul Kagame (Rwanda), Jakaya Kikwete (Tanzania), Pierre Nkurunziza .

Conventionally, businesses from the East African Community states involved in cross-border trade use the American Dollar as the medium of exchange.

This requires that they have to convert their national currencies to the Dollar before conducting transactions and later convert the currency back to their national currency.

In the process, they incur exchange related costs at least twice.

However, this is set to soon change following the operationalisation of an agreement between central banks of the EAC member states to promote trade using the various local currencies as opposed to the Dollar.

This will see the gradual phasing out of the American currency as the common currency in cross-border trade in the region.

Experts say the move will cushion respective national economies against volatility of exchange rate markets, which often expose traders to high exchange rate costs.

Thomas Kagabo, the chief economist at the National Bank of Rwanda (BNR), said following the signing of the memorandum of Understanding between the countries, central banks had also opened accounts for the five regional currencies so that they can accept the currencies from the commercial banks.

“The first step was signing the agreement. The last meeting recommended that each central bank will work with other stakeholders to sensitise people accept regional currencies. These include commercial banks, traders and sellers,” he said.

Kagabo said the next step is raising awareness among traders and commercial banks in the region to accept regional currencies in the exchange of goods and services.

This will help reduce the number of traders across the region using the dollar as the preferred currency for cross border trade and increase use of local currencies.

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Latest news, Business, East African Community states

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