The private Forex Hoarding Bill in the National Assembly proposes to crack down on foreign exchange in bank accounts (see P7). This is not a good idea.
The theory is that the exchange rate will come down if people stop holding onto forex. In fact, the exact opposite will happen. People and companies will panic and start holding forex in foreign bank accounts or cash. The Kenya shilling will depreciate even further if it is no longer freely convertible.
More importantly, this Bill would kill the Nairobi Stock Exchange and foreign direct investment if it ever became law. Investors will only bring their money into Kenya if they can easily get it out.
Further evidence that the author of this Bill is not an economist is that 15 percent of forex in accounts will be confiscated after 45 days. In addition, the owner of the account can be jailed. This is highly impractical. What happens if money goes in and out of the account every day? Does mean that all the dollars have been there more than 45 days, or less than 45 days?
The Speaker should make certain that this ill-thought-out Bill is scrapped immediately.
Quote of the day: "We swallow greedily any lie that flatters us, but we sip only little by little at a truth we find bitter."
Denis Diderot
The French philosopher was born on October 5, 1713