A fast-track East African Community Monetary Union? Convergence evidence from a cointegration analysis

There is a proposal for a fast-tracked approach to the African Community (EAC) monetary union. This paper uses cointegration techniques to determine whether the member countries would form a successful monetary union based on the long-run behavior of nominal and real exchange rates, the monetary base and real gdp. The four variables are each analyzed for co-movements among the five countries. The empirical results indicate only partial convergence for the variables considered, suggesting there could be substantial costs for the member countries from a fast-tracked process. This implies the EAC countries need significant adjustments to align their monetary policies and to allow a period of monetary policy coordination to foster convergence that will improve the chances of a sustainable currency union