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| Treasury Principal Secretary Kamau Thugge |
Former Treasury Principal Secretary Kamau Thugge suggested that the Central Bank of Kenya create a local dollar bond to relieve pressure on the shilling. However, outgoing Central Bank of Kenya governor Dr Patrick Njoroge has shot that idea down.
After President William Ruto nominated Thugge to be the next CBK governor, he informed the National Assembly’s Planning Committee that he would work with the National Treasury to issue local dollar bonds.
Thugge claims that by enabling Kenyans to withdraw their savings, the scheme would help improve the dollar’s liquidity and relieve pressure on the shilling.
The prospect of enhancing the liquidity of dollars in the system and assisting us in raising foreign currency reserves at the CBK exists if we can persuade Kenyans who have dollars in deposit accounts to release them by purchasing the bond, according to Thugge.
Njoroge pointed out that this was based on a misunderstanding of the current dollar deposits in commercial banks.
He described the proposal as a slippery slope and warned that it may disenfranchise small investors and further entrench dollarization.
It is quite difficult to imagine how the government will collect tiny deposits from private investors, such as Sh1,000 apiece, via a foreign currency-issued bond.
Additionally, this would serve to fuel the economy’s dollarization, which has already hurt other economies. Njoroge said, “I believe it to be a slippery slope, and I am doubting its advantages.
Njoroge stated that issuing local dollar-denominated bonds won’t address the market’s dollar scarcity problem.
Further, the CBK governor said that the bond will only draw in fresh capital from outside.
When we issue a Eurobond, which is mostly purchased by non-resident investors, we already do this, he said.