In an effort to combat illicit dollar trading and stabilize its currency, the Central Bank of Kenya (CBK) has taken decisive measures to crackdown on unlicensed currency dealers and black-market activities.
This initiative coincides with the Kenyan shilling experiencing a substantial depreciation, reaching an all-time low against the US dollar. The Kenyan shilling has steadily eroded in value, hitting a historic low of KES 151.3 against the US dollar. This concerning depreciation has raised alarms among policymakers, businesses, and the general public, as it has wide-ranging implications affecting international trade and domestic purchasing power.
In response to this economic challenge, the CBK has implemented a two-pronged strategy. Firstly, it has issued a warning to unlicensed currency dealers, cautioning them against providing money or value transfer services without proper authorization. This move aims to curb the informal and illicit dollar trading that has gained popularity as the shilling depreciates. The CBK emphasizes that such unregulated services lack legal protection, which puts consumers at risk in case of service providers’ defaults.
Secondly, the CBK has imposed a limit on the amount of foreign exchange that forex bureaus can sell to customers, capping it at a maximum of USD 100,000 per customer per day. This measure is designed to control the flow of foreign currency in the market, making it more challenging for businesses to engage in underground currency trading to meet their foreign exchange needs.
As the CBK tightens its control over the forex market, there has been a rise in the popularity of the Hawala system, a traditional Somali method of money transfer facilitated through a network of brokers known as hawalas. This system operates outside the conventional institutional framework, making it a preferred choice for some individuals and businesses.
The CBK has also called upon individuals and organizations to provide information regarding unlicensed entities and individuals offering monetary or value services, with the goal of identifying and prosecuting those operating without proper authorization. This further underscores the regulator’s commitment to curbing the black market and maintaining financial stability.
Despite the CBK’s strict penalties for forex market manipulation and government-supported agreements, the shilling’s decline has persisted throughout the year. The CBK is taking additional measures to address speculative activities in the banking sector, particularly the significant disparity in currency spreads among commercial banks, which suggests irregularities in trading practices.
