CBK bans electronic currency trading to stem shilling slide

Any currencies being traded between local commercial banks and international partners without prior approval from the Central Bank of Kenya have been given a freeze order.

This is the latest move by the regulator to try and stem the free fall of the shilling, which has seen it become the worst global performing currency.

At the close of trading Wednesday, the shilling averaged Sh101.1 to the dollar, having gained from Tuesday’s average of Sh104.

In a letter sent to the banks through the Kenya Bankers Association, the Central Bank of Kenya notes: “It has come to the attention of the Central Bank that a number of banks have signed up with international forex brokerage firms for provision of Electronic Brokerage Services.

As a result, it is now possible for banks to use electronic brokerage systems through internet-based electronic platforms. …all banks are reminded that approval should be sought from Central Bank before implementing such a system.”

On Tuesday, the Central Bank of Kenya governor blamed commercial banks for holding dollars from the market, even when Central Bank off loaded the dollars to the system for onward transition to the economy.

“This has failed to get through to the final importer, to the detriment of the economy and the price level,” noted the statement signed by governor, Prof Njuguna Ndung’u.

This was the second time Central Bank was turning the spot light on commercial banks for hoarding dollars to the detriment of the home currency.

In June, the Central Bank of Kenya accused five banks of hoarding and exporting huge amounts of the currency, which indicated possibility of arbitrage practices.