Foreign currency deposits surged to an all-time high of Sh625 billion in October as money poured into the country ahead of the festive season.
According to a Central Bank of Kenya report, the increase was also due to the fact that traders reduced their import orders, a situation that saw the shilling strengthen to a six-month high of 100.71 against the dollar by close of business on Friday.
The last time the local currency gained as much ground against the greenback was in April 9 when it was traded at 100.64.
In June, the value of foreign currencies held in local banks had peaked to Sh600 billion, largely due to increased diaspora remittances as Kenyans who had stashed money abroad rushed to beat the June 30 amnesty deadline.
About Sh30 billion was brought into the country during the month, which worked out to an average of Sh1 billion a day.
Foreign currency deposits - critical for the country’s import needs - increased by three per cent from Sh607.4 billion in September, according to the latest data from the CBK.
Export earnings, which would also have played a role in the latest increase, have however been stagnant, with the gap between what the country imports and what it exports (trade balance) deteriorating to Sh108 billion in October.
Kenya exports mainly tea, coffee and horticulture. Unfortunately, due to declining productivity, these commodities have not been competitive, with diaspora remittances overtaking them to become the country’s leading foreign exchange earner.
“Our highly-educated citizens are much sought after all over the globe. To signify the changing fortunes of our homeland, diaspora remittances grew by 10.9 per cent from Sh266.19 billion to Sh295.32 billion between June 2018 and June 2019, overtaking earnings from export of tea and coffee as the country’s largest source of foreign exchange,” said President Uhuru Kenyatta in his Jamhuri Day speech on December 12.
Meanwhile, currency outside of banks increased after a four-month period of demonetisation - the withdrawal of old Sh1,000 notes that saw slightly over Sh60 billion sucked into bank accounts.
In October, the currency outside of banks increased by Sh19.2 billion from Sh157.7 billion to Sh176.9 billion as Kenyans began to withdraw money from their accounts in preparation for the festivities.
The currency outside of banks was at Sh222 billion by the end of May when CBK began the demonetisation exercise.
CBK Governor Patrick Njoroge had hoped the process would lead to a more cashless economy, with most Kenyans using their mobile phones or debit and credit cards to transact.
About Sh7.4 billion out of Sh209 billion worth of the condemned notes did not find its way into the banking system for destruction, with Dr Njoroge noting that the lost cash could be part of dirty money that its holders were unable to redeem.
Banks flagged 3,172 suspicious transactions in the four months the exercise was conducted.