The Central Bank of Kenya has issued a new directive restricting how much foreign currency money remittance providers can sell daily to customers in an effort to bring more oversight to the foreign exchange market, according to a circular obtained Thursday by Sharp Daily.
The central bank said money remittance providers, which facilitate the flow of remittances through formal channels, have increasingly participated in the wholesale foreign exchange market without being required to comply with the bank’s guidelines and standards.
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“In the recent past, CBK has noted increased participation of MRP’s in the wholesale FX without being required to comply with the various guidelines, standards and codes of conduct that are in place,” the circular said.
To address this, the bank has restricted money remittance providers to selling no more than $100,000 worth of foreign exchange per customer per day. Any transactions above that threshold must be conducted through commercial banks, according to the circular issued by the bank’s director of supervision, Gerald Nyaoma.
“MRP’s will therefore be required to only sell FX, in excess of USD 100,000 or its equivalent to commercial banks,” Nyaoma wrote.
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The move aims to “create a fair and orderly market,” according to the circular dated Wednesday 13.
But Andrew Kulankash, an expert in cross-border remittances, warns the move could backfire.
“Whilst the move is targeted towards controlling the FX market through price transparency and fair trading practices, it is likely to have unprecedented results,” Kulankash said.
He predicts the limits could drive money remittance providers to sell foreign currency offshore rather than in Kenya, reducing supply and potentially creating a black market for foreign currency exchange. This could “exacerbate the depreciation on the Kenya Shilling,” Kulankash said.
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