CENTRAL BANK OF KENYA
OPENING REMARKS
BY
PROF. NJUGUNA NDUNG’U
GOVERNOR
CENTRAL BANK OF KENYA
DURING THE
EAST AFRICAN LEGISLATIVE ASSEMBLY WORKSHOP ON THE
EAST AFRICAN MONETARY UNION
Hilton Hotel, Nairobi
4th March 2010

Honorable Chairperson of Communication, Trade and
Investment Committee of East African Legislative Assembly,
Hon. Dahilo;
Representative of the Clerk of EALA, Mr. Enock Musiime;
Honorable Members of Parliament from EALA;
Honorable Members of Parliament from Kenya, Uganda,
Tanzania, Burundi, Rwanda;
Director of Planning and Infrastructure, EAC Secretariat, Mr.
Phillip Wambugu and other officials from the EAC Secretariat;
Senior Government Officials from the EAC;
Distinguished Delegates;
Ladies and Gentlemen:
• I am privileged by this invitation to participate in this important
Workshop on the East African Monetary Union being held here in
Nairobi. On behalf of the Central Bank of Kenya and on my own
behalf, I welcome you all to Nairobi, Kenya.
• Honorable Members of EALA and EAC National Assemblies, this
workshop comes at a time when East Africans are anxious to
appreciate the benefits from the East African Community Common
Market. The protocol on its establishment was signed in November
2009. The EAC Common Market will ensure free movement of factors
of people, services and capital across the five Partner States. Under
the common market, goods will be freely traded when the region
attains the status of a fully fledged Customs Union.
• As the Honorable members are aware, the EAC Common Market
Protocol has provisions that will guide elimination of capital
restrictions that continue to impede free flow of capital among the
EAC Countries. The cardinal principal of free movement of capital
ties with the next level of integration that is the East African
Monetary Union.

• In line with the regional integration as stipulated in the Treaty
provision, the 6th Extraordinary Summit of EAC Heads of State held
in Arusha, Tanzania on 20th August 2007 underscored the need to
move expeditiously towards establishing a Monetary Union by 2012.
• Following that Summit Directive, Governors of EAC Central Banks
met in Kampala, Uganda in January 2008 to map out a strategic
framework for fast tracking the establishment of an East African
Monetary Union by 2012.
• The meeting of Governors of Central Banks in Kampala decided on a
comprehensive study of the East African Monetary Union whose
major objectives were:
i) To take stock of the current state of preparedness of the EAC Partner
States for a Monetary Union. Among these was the economic
convergence of member states;
ii) To make proposals on the institutional framework and structure of
the proposed East African Monetary Union;
iii) To design a model protocol for the East African Monetary Union that
would form the basis for the Monetary Union negotiations among the
EAC Partner States;
iv) To propose an institutional framework for the East African Monetary
Institute which would precede and spearhead the creation of an East
African Central Bank; and
v) To propose a mechanism for the monitoring and enforcement of the
macroeconomic convergence criteria among the EAC Partner States.
• Honourable members, the Monetary Affairs Committee (MAC), that
comprises Governors of EAC Central Banks considered the terms of
reference for the Study that were approved by the Council of
Ministers. The Monetary Affairs Committee through the EAC
Secretariat engaged the services of the European Central Bank in
2009 to carry out the study through an internationally competitive
bidding process.

• As you may be aware Honorable members, the Draft Final Report of
the study on the establishment of the Monetary Union among the
EAC Partner States was validated in a workshop held in Kampala,
Uganda in January 2010. Subsequently, and after incorporating the
comments of the validation workshop the Final Report was submitted
and considered by the Joint Session of the Monetary Affairs
Committee, Fiscal Affairs Committee, Capital Markets Insurance and
Pensions Committee held in Arusha on March 1, 2010. In our
meeting held on March 1, 2010, the EAC Central Bank Governors and
Permanent Secretaries from the Ministries of Finance, Trade and
EAC recommended to the Ministers of Finance that the Study report
on the establishment of the EAC Monetary Union, together with all its
annexes be adopted as one of the working documents for the East
African Monetary Union negotiation process.
• Honorable members, the Committee of Permanent Secretaries from
the Ministries of Finance and Governors of the EAC Central Banks
considered a draft road map for the establishment of the East African
Monetary Union. The Committee noted the following issues under the
draft road map that required detailed consideration; Legal,
Institutional and Regulatory Framework; Operational Issues and
Policy Direction on available options for establishing the East African
Central Bank. It was recommended that a High Level Task Force
(HLTF) be formed to negotiate the East African Monetary Union
Protocol and review the draft road map.
• The meeting recommended to kick start the process towards an East
African Monetary Union by Commencing negotiations on the
comprehensive protocol on the establishment of the East African
Monetary Union. This protocol also features the Statute of the East
African Monetary Institute and the East African Central Bank. The
proposed Institute will carry out the preparatory work that will guide

the region towards formation of an East African Monetary Union and
its supporting institutions.
• In order to give this process the necessary institutional momentum,
our meeting recommended that a sectoral Council of Ministers
responsible for Finance be formed to spearhead the East African
Monetary Union process and proposed their terms of reference. This
Sectoral Council of Ministers of Finance will provide policy guidance
on the negotiations of the East African Monetary Union process.
• I note from the programme of this workshop that members will be
taken through the presentations on the prerequisites for the
establishment of the East African Monetary Union; Legal and
Institutional Framework for East African Monetary Union;
Preparatory work for the establishment of a single currency and at the
end of each presentation, there are plenary discussions. The
recommendations that will come from the discussions in this
workshop will inform the negotiation process.
• I wish to remind honorable members that one of the benefits of a
monetary union is to reduce the costs and risks of doing business
across the national boundaries. Most of these costs are transactions
related. With a single currency, the costs of having to transact in
different currencies and the risk of adverse exchange rate movements
that could impede intra-regional trade within the EAC Community
will be removed.
• Secondly, as banks continue covering the region, they will spread the
financial services for traders but also bring all regulators on a
common platform. A Monetary Union will make this more efficient.
• Honorable members of Parliament, the gradual convergence of all the
East African economies is critical while moving to a Monetary Union.
Fiscal policy and fiscal rules are the most critical and crucial for
economic convergence, and perhaps even more importantly, for the
credibility and sustainability of the Monetary Union. Monetary Policy

will be driven by other decisions like exchange rate policy and
reserves as well. One recent development, for example in Kenya is
inflation measurement. Inflation will determine the direction of
monetary policy in any country. But for EAC members, we have to
compare ourselves when we use a common methodology. There are
many such challenges and the central banks in the region are ready to
tackle them in totality to develop more convergence.
• Honorable members, as I conclude, I see enormous opportunities for
East Africans as we move ahead. As East Africans, we need to tap and
consolidate these opportunities. Certainly the way ahead will bring
about legal and legislative reforms that need to be embraced in the
road to a single currency.
• I thank You Honorable Chair for your kind attention and wish you
fruitful deliberations over the next two days of your meeting.