East Africa Currency

The East Africa Shilling, in force in Kenya, Uganda and Tanganyika-Tanzania from 1921 to 1966, expired in 1969.

Since 2012 there has been talk of reviving a common currency for the three original countries plus Rwanda and Burundi. The usual hitches postponed the operation until 2015. 2015 has come and gone, and there is no sign of anything happening.

To understand why, let us retrace our steps to when the East Africa Currency Board managed the former E.A. Shilling, and why it ceased to function.

Besides being the currency of the East African territories, the E.A. Shilling was also the official currency of Aden. But Aden was not happy with the arrangement, because the economy of East Africa differed substantially from Aden’s, and any monetary ups and downs in the former could negatively affect the latter.

When the three African territories became independent countries, they set up each its own Central Bank, as did Aden. By 1977 the East African Community was no more.

The Croesus Legacy

It is vital to understand that the monetary troubles affecting the E.A. Shilling 50 years ago, as the difficulties in restoring some semblance of monetary order in this part of the world today, are no different from the troubles affecting the Euro since its launching, or for that matter any attempt at forming monetary unions along history. The same troubles would unfailingly appear regardless of whether geniuses or nincompoops were in power, and of their policies. The genesis of the troubles is to be sought in the nature of money itself since its launching by King Croesus of Lydia in mid-sixth century B.C.

Before him, statesmen like King Numa of Rome and Lycurgus of Sparta had understood that a medium of exchange must not have intrinsic value, which turns money into a good in its own right. Intrinsic value attracts chrematists, i.e. those who consider money as wealth in its own right. “Chrematists” is a learned word for thieves, robbers, murderers and assorted malefactors. That’s why Pythagoras, who lived after Lycurgus but before Croesus, hailed the former for having banned gold, the origin of all crimes, from Sparta.

Croesus monetized electrum, an alloy of gold and silver abundant in the sands of the Lydian river Pactolus. By stamping the coins with his royal seal and guaranteeing their weight, he became rich and famous.

But in so doing he infected money with a canker that in two and a half millennia shows no signs of abating, still trapping millions into the superstition that money must have “intrinsic value” by being “backed” not by wealth created by honest work but by gold or some other precious metal. In other words, he added the function of store of value to that of medium of exchange.

The two functions are contradictory, so that their presence in the same piece of gold/silver/paper/glass or whatever makes it impossible to define money. This is not surprising, for no two things can both be defined together, least of all if they contradict one another. It is like defining a square circle, dry water, a virgin of easy virtue and the like.

But the iron grip that this superstition has on people’s minds to this day is beautifully illustrated by a recent video, where a very articulate Sierra Leone economics graduate had this to say before a rapt Berlin audience: “One thing keeps me puzzled, despite studying economics at some of the world’s best universities. The following question remains unanswered: why is it that 5000 units of our currency are worth one unit of your currency, while we are the ones with the actual gold reserves?”

Had one of those “world’s best universities” taught her about Croesus, she would have the answer, which in plain English is a) that gold has nothing to do with either the Euro or Sierra Leone’s currency, and b) that an exchange rate of 5000 Leone to 1 Euro is designed to make cash more abundant in Sierra Leone than if the rate was 500:1, 50:1 or worse 1:1.

So-called “strong” currencies benefit the aforementioned chrematists, plus hoarders, export-importers, stock brokers and sundry money manipulators, all of whom want unstable currencies so as to make more money out of existing money. So-called “weak” currencies benefit the much larger numbers who need a stable medium of exchange to buy and sell the fruits of their labour.

The Breakup of the East African Community

Now it is possible to understand why the E.A. Community broke up in 1977 over this very issue: Kenya went for a “strong” Shilling. Starting from a rate of 7:1 to the US dollar, it has weakened down to 110:1 in 40 years. Such planned scarcity has over the years induced people to move from cash-starved rural areas to relatively cash-abundant city slums.[1] Uganda and Tanzania opted for a “weak” shilling, making currency abundant for ordinary people to the disadvantage of the (fewer) importers-exporters. [2]

Those who plan to restore a common currency must have bumped into the same, inexorable dilemma: will such currency benefit the users or the hoarders? It cannot benefit both, because Croesus’ contradiction prevents it. Is there a solution?

A True and Tried Model: the Latin Monetary Union 1865-1915

The solution is a double currency, such as practiced between the years 1865-1915 by France, Italy, Belgium, Switzerland and Greece.

The national currencies were kept for domestic transactions, but there circulated a 5 Franc silver piece for international transactions, freely convertible in the five countries.

The monetary mass of the 5 Fr pieces accounted for some 40% of the total. Overabundance of it indicated an imbalance of payments of the country affected, corrected by depressing domestic prices; scarcity indicated the opposite, corrected by increasing those prices.

The system worked for 50 years, until the Great War destroyed it with many other things. Emperor Napoleon III offered membership to the United States, but Lincoln declined.[3]

Had the countries of the Euro Zone repeated the experience of 150 years earlier, keeping the national currencies but adding the Euro, they would have solved all the intractable problems that the Euro alone has not only left unsolved, but has considerably worsened.

The New E.A. Community

The five East African countries have the conditions to repeat the happy experiment of the Latin Monetary Union of 150 years ago.  The domestic currencies would stay as they are, but made inconvertible for the sake of the stability of domestic prices; a second currency, convertible and akin to the 5 Fr piece of 150 years ago would take care of international transactions within and without East Africa.[4]

If besides that, the five Central Bank Governors were daring enough to remove from their domestic currencies the parasitic function of store of value, the East African Zone would become debt- and usury free, thus launching a new era of freedom for the whole world.


[1] Or slum towns like Mtwapa and Bombolulu, north of Mombasa.

[2] The advent of M-PESA in 2007 has relieved the Kenya situation immensely, to the chagrin of banks and money manipulators, but that is another story. Slum population is higher in Kenya than in Uganda and Tanzania

[3] The European countries that have not officially adopted the Euro are de facto on a double currency: Sterling Pound-Euro, Swiss Franc-Euro etc.

[4] Needless to say, this second currency would not have to be a coin, least of all of precious metal.


AUTHOR: Den Anoisíes (Email: [email protected] ; Follow on Twitter: @Den_Anoisies)

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