The State Department’s directives to restore the interbank currency market have reduced the worrying dollar shortage.
The changes were implemented in response to President William Ruto’s order on March 22 to revive the interbank foreign exchange market in an effort to do rid of market distortions that had exacerbated the foreign exchange shortfall.
A significant dearth of hard currency has been attributed in part to the absence of a thriving interbank foreign exchange market, requiring the government to seek out longer credit terms for essential imports like gasoline.
The interbank market for hard currency has been dormant in recent years as a result of what merchants described as strict supervision by the central bank.
Additionally, it has spawned a parallel currency exchange market where money changers charge a rate for foreign exchange that is greater than Sh10 per dollar than the official rate set by the central bank.
From Sh13 in early March, the difference between official and open market pricing has dropped to an average of Sh6 per unit. The widening of the differential has produced a black market for dollars due to a lack of supply.
The secondary effect of increasing consumer costs and projected supply interruptions of essential imported commodities has made the dollar shortage a national issue.
Due to pressure from the central bank on commercial lenders to prevent the shilling from falling too far, currency exchange between Kenyan banks has decreased in recent years.
Patrick Njoroge, the governor of the central bank, has frequently dismissed claims that the regulator was intruding on the market without authorization and argued that it was merely upholding order.