15 senior officials from all EAC Partner States’ Central Banks and two officials from the EAC Secretariat participated in a study tour to the European, German and Belgium Central Bank as well as other financial institutions of the European Union in July 2017.The participants studied the setup and experiences of monetary institutions in the Eurozone in order to draw conclusions for the role of East African monetary institutions in the run-up to the East African Monetary Union (EAMU), which is planned for 2024.
The EAC experts met with senior officials of the German Federal Bank (Bundesbank), the European Central Bank (ECB), the Federal Financial Supervisory Authority (BaFin), the EU Commission and the National Bank of Belgium(NBB). At the GIZ office in Bonn they had a joint EAC-GIZ workshop to familiarise themselves with related GIZ technical assistance programmes and to discuss potential areas for future collaboration between EAC and GIZ.
Important topics and learning areas concentrated on how 19 countries in Europe with a single currency manage challenges such as the sharing of responsibilities among monetary institutions, the formulation of monetary policy strategies and measures in case of crises. It was also interesting to understand how national central banks function in a system with centralised decision making processes and decentralised implementation of monetary policies. They also looked into the convergence criteria for participating at stage 3 of the European Monetary Union in comparison to the convergence criteria agreed in the EAC. Fiscal financing and financial stability with special focus on strengthening vigilance at the central level was another area of attention.
The European experts underlined that the EURO had positive overall economic effects in most countries; nevertheless, shortcomings and risks had to be clearly identified and discussed. Their most important message was that the benefits of the monetary policy cannot be achieved without more coordination of fiscal and economic policies.
The EU monetary union experience points to a very close collaboration and clear division of responsibilities between the European Central Bank (ECB) on the one hand and national central banks on the other, which together constitute the European System of Central Banks. Crucial decisions shaping monetary policies are taken and monitored centrally by the ECB, but the implementation is done by national central banks. There is also close collaboration between the ECB and national central banks in ensuring financial stability of the Euro zone. Beyond monetary policy and financial sector stability, most other traditional functions of central banking remain with national central banks, albeit, with a close monitoring by the ECB to ensure compatibility with the monetary policy stance.
It became clear that, besides the technical and institutional set up, the EAC has to continue harmonisation and liberalisation in many different fields, before the monetary union can be successfully implemented. The participants considered Europe an excellent example for integration, which became especially visible when they crossed the almost invisible borders between Germany, the Netherlands and Belgium. The participants expressed their great satisfaction with the experiences gained in the study tour and said these will guide them in their decisions on the establishment of the planned four East African monetary institutions and in determining the role of the East African Monetary Institute as a precursor to the future East African Central Bank.