Kenya Banks on BRIC De-Dollarization to End Dollar Crisis

Kenya Banks on BRIC De-Dollarization to End Dollar Crisis

Kenya Banks on BRIC De-Dollarization to End Dollar Crisis

Njuguna Ndung’u, the Treasury Cabinet Secretary, stated to the National Assembly on Wednesday that Kenya is relying on the BRICS nations of Malaysia and non-BRIC India, China, Saudi Arabia, and Russia to resolve the country’s dollar crisis.

In response to questioning from MPs regarding the steps his ministry is taking to address the shortage in dollar supply, Prof. Njuguna blamed Kenya’s trade deficit with the other five countries for the nation’s current currency crisis.

Ndung’u informed the lawmakers that the five nations accounted for 43.7% of Kenya’s total imports during the year ending in May 2023. The CS said that the trade deficit has made the foreign exchange problem worse when asked how this was harming trade in Kenya and adding to the dollar crisis.These nations contribute for nearly 70% of Kenya’s trade imbalance, according to the Treasury CS.

Kenya has a large trade relationship with China, whose imports account for 19.3% of all Kenyan imports. Kenya, on the other hand, barely sends 3.1% of its overall exports of goods to China.

According to the Treasury, Kenya mostly imports goods from five nations, including oil, machinery, transportation equipment, and raw materials (ores). Kenya receives significantly lesser exports of goods including tea, fruits, vegetables, and cut flowers in return.

How Kenya Will Benefit from Dollarization

The US dollar is used most frequently in trade with these international countries.

Kenya frequently uses its meager dollar reserves to close the trade gap due to the country’s larger imports than exports.

Kenya may save more of its dollar reserves for commerce with Western countries if these nations switched to a different currency.

The Kenyan shilling’s value relative to the dollar will thereafter stabilize as a result of this.

A higher shilling relative to the dollar would also slow the expansion of unregulated, or “black,” currency exchange markets.

Brazilian President Luiz Inacio Lula da Silva pushed for member nations to investigate the formation of a shared currency for trade and investment as a way to lessen dependency on the US dollar during a BRICS Summit in South Africa in August.

The Kenyan government has high hopes that the Economic Community will act on this suggestion.