Cash held by Kenyans in dollar accounts surged to a high of Sh891.5 billion in June as the country continued to grapple with a shortage of the greenback.
This was a 17.3 per cent increase compared to Sh760.3 billion that was in the foreign currency deposits by end of June 2021, latest data from the Central Bank of Kenya (CBK) shows.
Kenyans continued to grapple with a shortage of dollars, owing to a myriad of factors including the war in Ukraine and the tightening of the monetary policy in the US which has contributed to the strengthening of the dollar.
The weakening of the Shilling has also seen investors convert their wealth into dollars in what is aimed at hedging against the increase in prices of goods and services which can have the effect of eroding their assets.
Even as Kenyans stockpiled dollars, data from CBK showed that commercial banks' foreign exchange reserves (FX)- or bank's holding of foreign currencies, especially dollars, which are available for trading - dropped by nearly a fifth to Sh469.8 billion in May from Sh582.9 billion in the same month last year.
In June, Treasury Principal Secretary Julius Muia said that while there was no shortage, negative sentiments from manufacturers were pushing people to accumulate dollars.
Muia said that manufacturers, who had been complaining about the dollar shortage, might have started working from a premise of a dollar shortage, creating panic in the foreign exchange market and people therefore accumulated the hard currency.
"This creates an artificial shortage which is not reflecting the reality on the ground," said Muia during the launch of the latest World Bank's Kenya Economic Update.
The PS insisted the government has enough foreign exchange reserves to cover its import needs. "Therefore, there shouldn't be a problem in terms of availability of the hard currency."
Churchill Ogutu, an economist, said that it is hard to unpack whether the existing dollar accounts have had an increase in deposits or the switch from the Kenya shilling to dollars.
CBK is yet to release the latest data to show the extent to which Kenyans have been stockpiling dollars.
However, in volatile times like this when the world is affected by various challenges including the Russia-Ukraine conflict and the lingering effects of the Covid-19 pandemic, there is a likelihood of a flight to safety.
Investors tend to convert their money into stronger currencies like dollars or precious commodities like gold, in what is aimed at hedging against the erosion of their wealth.
This in turn puts the local currency under pressure, with a lot of foreign currencies leaving than coming into the country.
It is not just Kenyans who have been converting local currencies, foreign investors have also been evacuating dollars from the economy as they move their investments to much safer assets in advanced economies.
As a result, the shilling has weakened and was trading at a historic low of 119.6 against the dollar.
Manufacturers insist there is a dollar shortage with some companies such as Pwani Oil forced to temporarily halt operations.
The Kenya Association of Manufacturers (KAM) has also insisted that its members have had difficulty accessing dollars.
But Treasury accused manufacturers of creating an artificial dollar shortage.
Official reserves were highest in June last year (6.1 months of import cover), but have slowly been declining over the months to stand at $7,621 million (Sh911.5 billion), amounting to 4.39 months of import cover.