CBK enters talks with Sudan over currency exchange
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CBK said Thursday in a statement that it is working to fast track the opening of reciprocal accounts with the Bank of South Sudan (BSS).
Reciprocal accounts normally help to smoothen currency exchanges between two countries by giving local banks a chance to take currencies of a foreign country to their local central bank.
Currency dealers welcomed the announcement, saying it will encourage local commercial banks not to reject the South Sudan pound.
Currently the South Sudan pound is exchanging at 3.4 pounds to one US dollar and one US dollar is equivalent to Sh85 at current exchange rates, which puts the South Sudan pound to Kenya shilling rate at about 25.
The Central Bank of Kenya and the Bank of South Sudan are in talks that could lead to the setting up of an official exchange rate between the two countries.
The CBK said Thursday in a statement that it is working to fast track the opening of reciprocal accounts with the Bank of South Sudan (BSS).
The move comes after several months of biting shortage of foreign currency in South Sudan that has seen Kenyan companies lose sales opportunities and a means to re-stock or repatriate their earnings.
“The governors have drawn timelines (to) fast track the opening and operationalisation of reciprocal accounts at BSS and CBK,” said the CBK in a statement.
Reciprocal accounts normally help to smoothen currency exchanges between two countries by giving local banks a chance to take currencies of a foreign country to their local central bank.
In this case, it would mean Kenyan banks or South Sudan banks depositing currencies of either country in their central banks, thereby facilitating free exchange of the currencies.
Kenyan banks would, in this case, take South Sudan pounds to the CBK, which will periodically be taking them back to BSS.
The BSS will in turn surrender Kenya shillings to CBK in exchange for the South Sudan pound.
Currency dealers welcomed the announcement, saying it will encourage local commercial banks not to reject the South Sudan pound.
Traders at the border of South Sudan and Kenya have for the last two weeks reportedly been exchanging the two currencies at a rate of between Sh25 and Sh30 for every South Sudan pound.
The Kenyan ambassador in Juba, Mr Cleveland Leshore, confirmed that South Sudanese and Kenyan traders are exchanging the two currencies at the border informally, adding that the exchange rate varies in the black market.
Currently the South Sudan pound is exchanging at 3.4 pounds to one US dollar and one US dollar is equivalent to Sh85 at current exchange rates, which puts the South Sudan pound to Kenya shilling rate at about 25.
Previously, the absence of an exchange rate for the Kenyan shilling against the South Sudan pound has made it difficult for Kenyans working in the neighbouring country to send money back home or convert it into local currency.
Mr Leshore had told the Business Daily in an earlier interview that CBK officials are discussing with their South Sudanese counterparts how best to deal with the crisis of foreign currency shortage.
South Sudan has suffered a dollar crunch since it stopped oil exports following a disagreement with its northern neighbour over fees payable for the use of the pipeline that transports the oil to Port Sudan for export.
Kenya’s exports to South Sudan include cement, roofing materials, food and petroleum products among other goods.
An official exchange rate would enable Kenyan companies operating in South Sudan to get payment in time without entering to a foreign exchange queue.
Kenyan companies such as Jetlink have been on a waiting list for US dollars from the BSS for too long that they chose to close operations in the country.
Other companies that have been affected include Bidco East Africa, Mabati Rolling Mills, East African Breweries, Devki Steel Mills and service industry players such as hotels.
Local banks with operations in South Sudan, such as KCB, said they stopped issuing Sudanese pounds for Kenya Shillings account holders and vice versa after the central bank of South Sudan stopped them from trading the South Sudanese pound against the US dollar to check dollar outflows from the market.
The CBK also said that it is offering technical support to the BSS such as helping it deepen the financial markets and reviewing and finalising balance sheets.
“The governors signed a memorandum of understanding for the envisaged cooperation and appreciated that initial steps taken to address the challenge of capacity at Bank of South Sudan had been taken,” said the statement.
