Zachary Ochuodho @zachuodho
Kenya has been advised to enter a bilateral currency swap relations with China so as to address fluctuations of the shilling against the US dollar.
According to Capital Market Authority (CMA), the move will help reduce the impact of US dollar on the local currency and improve the country’s international standing as a stable economy with sufficient reserves to withstand any economic crises.
Luke Ombara, director, regulatory policy and strategy at CMA said the trade stand-off between the US and China is worsening the dollar scarcity – making countries, which pay through the dollarised denomination to reduce reliance on the US dollar.
Speaking during the launch of the third quarter, 2018 Market Soundness report last week, he said the US-China trade war could extend well into the foreseeable future given that no consensus has been reached on how to resolve the dispute.
“As a country, Kenya has a substantial portion of its debt obligations to China and as a way to addressing foreign exchange fluctuations, the country could consider keeping a portion of its official foreign reserves in RMB, the legal tender of China” he said.
According to the soundness report, Kenya should consider signing double tax agreements with major global players and trade partners. Should the US-China trade dispute persist for a while, it may derail global supply chains and ultimately have a knock-on effect on growth in emerging markets, Kenya included.
The report said the key highlight on the concerted efforts by some countries led by China to reduce reliance on the US dollar in conducting international transactions and Kenya could lend a leaf from other countries to help it overcome what appears to be imminent dollar shortage due to the loans.