Thursday, June 1, 2023 – Outgoing Central Bank of Kenya governor, Dr. Patrick Njoroge, has poured cold water on the suggestion by former Treasury Principal Secretary Kamau Thugge that he will issue a local dollar bond to ease pressure on the shilling.

Thugge, who has been nominated by President William Ruto as the next CBK governor, told National Assembly’s Planning Committee that he will liaise with the National Treasury to issue local dollar bonds.

According to Thugge, the plan will help to increase the dollar liquidity by allowing Kenyans to release their deposits, easing pressure on the shilling.

“If we can get Kenyans holding dollars in deposit accounts to release them by buying into the bond, then we will have the possibility of increasing the liquidity of dollars in the system, and this will help us in building up foreign exchange reserves at the CBK,” said Thugge,

However, Njoroge noted that this is based on a misconception of existing dollar deposits in commercial banks.

He referred to the plan as a slippery slope, warning that it could disenfranchise retail investors and lead to further entrenchment of dollarization.

 “It is very hard to think of how the government would mop up small deposits from retail investors, say with Sh1,000 each through a foreign currency issued bond.

This would also end up fanning the flames of dollarisation in the economy and you can think of the effect this has had in other economies. I think it’s a slippery slope and I’m questioning the benefits of it,” said Njoroge.

Njoroge argued that local dollar-denominated bond issuance will not solve the issue of dollar shortage in the market.

The CBK governor further said the bond will only attract new dollars from the rest of the world.

 “We already do this when we issue a Eurobond, which is bought mainly by non-resident investors,” he stated.


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