The Central Bank of Kenya Governor Kamau Thugge has claimed that the rapid crash of the Kenya shilling against global and regional currencies is because of overvaluation.
The CBK Governor alleges that the shilling was overvalued for six years under the presidency of retired President Uhuru Kenyatta. He alleges that it dawned on the government of current president William Ruto that the shilling was overvalued after taking power.
The Governor said that the International Monetary Fund (IMF) and the World Bank had said that the shilling was being manipulated to stay strong by the government of former president Uhuru.
His claims are a sharp contradiction to what President Ruto has previously alleged about the shilling. President Ruto and his deputy Rigathi Gachagua have previously blamed the weakening of the shilling on cartels hoarding dollars.
In April this year for instance, the President claimed that his government had instituted measures that would stabilize the shilling to levels of about Sh. 115 to Sh. 120 against the US dollar. One of these measures, he said, was the oil deal his government had entered into with Arab countries in the Middle East.
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However, the local currency has continued to fall helplessly, losing about one shilling every week. On October 24, 2023, the shilling hit a record low of 150 against the US dollar.
Ironically, when he appeared before a parliamentary committee to be vetted for the position of Governor, Thugge had also claimed that the shilling was getting weak because of hoarding.
He said that upon occupying the office of Governor, he would seek to issue a dollar-dominated bond.
“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.”
His proposal was rubbished by the then outgoing Governor Patrick Njoroge who said that his suggestion would do more harm than good.
“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.”
