Commercial banks have been notified by the Central Bank of Kenya (CBK) about the launch of a new Kenya Foreign Exchange Code (FX Code).
The President of Kenya, William Ruto, has expressed his optimism following this direction saying this will help ease the current dollar shortage in Kenya.
President of Kenya 🇰🇪 talks easing dollar shortage in Kenya and the re-introduction of the interbank FX market to resolve the problem of a parallel markethttps://t.co/qBrZEcH3Pd pic.twitter.com/zirRZEJWyy
— BitKE (@BitcoinKE) March 27, 2023
“The code sets out standards for commercial banks, and aims to strengthen and promote the integrity and effective functioning of the wholesale foreign exchange (FX) market in Kenya,” a statement by CBK reads in part.
“It will facilitate better functioning of the market, reinforcing Kenya’s flexible exchange rate regime for greater resilience of the economy,”
The FX Code is organised around six leading principles:
- Ethics – Market participants are expected to behave in an ethical and professional manner to promote the fairness and integrity of the FX market
- Governance – Market participants are expected to have a sound and effective governance framework to provide for clear responsibility for and comprehensive oversight of their FX Market activity and to promote responsible engagement in the FX market
- Execution – Market participants are expected to exercise care when negotiating and executing transactions to promote a robust, fair, open, liquid, and appropriately transparent FX Market
- Information Sharing – Market participants are expected to be clear and accurate in their communications and to protect confidential information to promote effective communication that supports a robust, fair, open, liquid, and appropriately transparent FX market.
- Risk Management and Compliance – Market participants are expected to promote and maintain a robust control and compliance environment to effectively identify, manage, and report on the risks associated with their engagement in the FX market
- Confirmation and Settlement Processes – Market participants are expected to put in place robust, efficient, transparent, and risk-mitigating post-trade processes to promote the predictable, smooth, and timely settlement of transactions in the FX market
“Market participants will be required to conduct a self-assessment and submit to the CBK a report on the institution’s level of compliance with the FX Code by April 30, 2023,” said the Central Bank.
The code comes into immediate effect.
The Central Bank announced the code on the same day that President William Ruto revealed that his government is working with the central bank to revive the inter-bank foreign exchange market.
According to a Reuters report, the inter-bank market for hard currency has turned dormant in recent years due to what traders said was aggressive policing by the central bank which made it difficult to do deals.
The absence of a thriving inter-bank foreign exchange market has been cited as one of the causes of a severe shortage of foreign currency which has compelled the government to request extended credit terms for vital imports such as petroleum.
This situation has also resulted in the emergence of a parallel market where money changers offer a foreign exchange rate that differs from the official central bank rate resulting in a discrepancy of approximately 10%.
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