Central Bank of Kenya Governor Dr. Patrick Njoroge has rubbished a proposal by incoming Governor Kamau Thugge to issue a local dollar-dominated bond to shore up the falling Shilling.
Thugge had made the proposal when he appeared before a parliamentary committee that is expected to rubber stamp his appointment to the position of Governor.
“One of the things that I would like to explore with the National Treasury is the possibility of actually issuing a dollar-denominated bond, the way we issue an infrastructure bond, and we structure it and sell it locally,” Thugge had said.
“If we can get those Kenyans who are holding dollars in their deposits to buy into it… we will have a possibility of actually increasing the liquidity of dollars in the system but also building up foreign exchange in the Central Bank.”
However, this has been termed as a slippery slope that will have more cons than pros on the Shilling by Dr. Njoroge.
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“The concerns in a sense of this being the foreign currency deposits in my view, or in our view, as a Central Bank, (is) misplaced,” said Dr.Njoroge, adding that there is no free foreign currency that is sitting somewhere in somebody’s account.
“A local dollar-denominated bond issuance would not mop up any excess dollars as there are none. The bond would only be beneficial to the extent that it would attract new dollars from the rest of the world. We (however already) do this when we issue a Eurobond which is bought mainly by non-resident investors,” said Dr. Njoroge.
“It is very hard to think of how the government would mop up small deposits from retail investors, say with Sh. 1,000 each through a foreign currency issued bond. This would also end up fanning the flames of dollarisation in the economy and you can think of the effect this has had in other economies.”
