Top central banks unite to handle dollar shortage

Large central banks have increased the frequency of seven-day maturity operations from weekly to daily in a bid to address the ongoing global US dollar shortage.

The daily operations will continue through the end of April.

In a statement, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank said the coordinated action will enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.

The network of swap lines among these central banks is a set of available standing facilities that serves as an important liquidity backstop to ease strains in global funding markets.

This helps to mitigate the effects of such strains on the supply of credit to households and businesses.

This is good news for countries like Kenya which are currently suffering acute dollar shortages that are threatening to further push spiralling inflation. 

On Monday, the Google Currency tracker mapped the shilling at 130 units against the greenback, having shed almost 14 per cent in the past 12 months. 

The dollar shortage has seen the rise of a parallel foreign exchange market that has seen the dollar sell at a high of Sh147 even as the forex reserves drop to a decade low. 

On Friday, the Central Bank of Kenya said the available FX reserves were at $6.5 billion or Sh854 billion, having breached both national and regional thresholds of between 4-4.5 months of import cover. 

The regulator, however, insists that the reserves are adequate to cover at least three months of import.