What EAC plan to ditch dollar means for Kenya

The East African Community (EAC) has ramped up pressure on member states to adopt local currencies in trade with each other, in the latest push to bring down a bullish US dollar that is hurting economies in the region.

David Ole Sancock, a Kenyan member of the East African Legislative Assembly (EALA), introduced a resolution recommending that the EAC use local currencies to promote cross-border trade.

The recommendation of the legislator to the Council of Ministers and the partner countries of the East African Group adds to the push for emerging and border economies to abandon the use of dollars in settling cross-border trade, in what is known as de-dollarization.

“Now, the Conference may decide the following: that, in accordance with Article 49(2)(d) of the Treaty, the Conference recommends to the Cabinet and Partner Countries to give effect to the use of local currencies from the Partners in all transactions in the Community in order to facilitate intra-trade,” said Mr. Sankok.

The EAC is, according to a study by the African Development Bank, the most integrated regional economic community on the continent, which explains the fluidity of trade across the borders of member states.

Also read: Kenya salutes the efforts of African countries to abandon the dollar

Dr. Kennedy Manyala, an economist who worked for the EAC, says dollars are only used where they can be easily obtained.

“There is no country that does not want to stockpile dollars,” he said.

Dr Manyala said that the Kenyan shilling has been very competitive against the dollar in the East African Community when it comes to trade and investment.

This means that you can actually settle your accounts in all EAC member countries in Kenyan Shillings.

This proposal comes at a time when the Kenyan currency is weakening against regional currencies, in a trend that has seen Tanzania and Uganda narrow the gap between them.

In the past three years, the Kenyan shilling has lost 21.7 percent of its value against the Tanzanian shilling, bringing in 17.07 units of the Tanzanian currency. For its part, the Kenyan shilling brought in 31.16 Ugandan shillings, down by 24.9 percent three years ago.

James Njoroge, Chairman of the China and Dubai Trade Group, said that citizens of East African countries have been trading along Busia, Malaba and other border points for a long time, and that the adoption of regional currencies should not be a problem.

Njoroge noted that even if countries do away with the US currency, exchange rates will still be dictated by the US currency.

He said the US dollar is a “supercurrency” that determines the value of all other currencies and how they are exchanged among themselves.

“We can therefore call it an array or a tool for exchange between countries,” Mr. Njoroge said.

Sancock’s proposal echoes recent comments made by President William Ruto in a speech to the Djibouti Parliament urging African countries to consider settling cross-border transactions in their own currencies rather than dollars.

“Why is it necessary for us to buy things from Djibouti and pay in dollars? Why? There is no reason. And we are not against the US dollar, we just want to trade much more freely. Let us pay in US dollars what we buy from the US,” said Dr. Ruto.

As countries find themselves short of the dollar, the world’s reserve currency, many have pushed to find ways to bypass the US currency in their cross-border trade.

Traders buying maize from Uganda and Tanzania have not used dollars to buy the staple in the past five months, said a source at a regional body dealing with grains in Kenya.

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For a long time, a Kenyan buyer was buying corn from a Ugandan seller with dollars. The Ugandan seller then converts the currency into Ugandan Shillings. Expose this trader to the risk of exchange losses.

“Everything — from transport, trade to invoice — was denominated in dollars,” said Gerald Masella, CEO of the East African Grain Board.

Grain traders now resort to direct translation where a Kenyan trader, for example, buys a Ugandan shilling in Kenya to pay a seller in Uganda.

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