Let the Kenya shilling float against US dollar

In Summary

• Manufacturers says there is a shortage of US dollar but the CBK and commercial banks deny it

• Commercial banks are selling US dollars for 117 shillings but forex bureaus are charging 124 shillings

A cashier at a Nairobi forex bureau counts dollars and shillings/
WEAK SHILLING: A cashier at a Nairobi forex bureau counts dollars and shillings/

The Kenya Association of Manufacturers claimed last week that there is a dollar shortage so that importers cannot access enough foreign currency to operate efficiently.

This was hotly denied by the Central Bank Governor Patrick Njoroge who said that the monthly supply of dollars in the market exceeds demand.

Yesterday the Kenya Bankers Association echoed Njoroge, saying that the alleged shortage was caused by importers making multiple applications to buy dollars.

But why would importers make multiple applications in the first place? Surely that implies some kind of shortage.

Moreover the shilling has been steadily depreciating this year against the US dollar. Even allowing for instability caused by the Ukraine crisis, that also implies a shortage.

In the end, the market decides based on the law of supply and demand. And forex bureaus are paying five percent more for dollars than commercial banks. A parallel forex market is emerging for the first time since the 1990s. That too implies a shortage of dollars in the market.

The solution is simple, as recommended in a column by an anonymous banker last week. Just let the Kenya shilling float to its natural level against the US dollar.  

Quote of the day: "We, the young people, wished to see Botswana acting as a country at the end of the colonial era, not as tribes."

Quett Masire
The second Botswanan president died on June 22, 2017

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