Saudi Arabia's Currency Shift; Kenya's Interbank Revival

Photo : Reuters

NAIROBI, Kenya - Saudi Arabia's Finance Minister, Mohammed Al-Jadaan, recently indicated in a Bloomberg TV interview that the kingdom is open to exploring alternative currencies for settling trade arrangements. Al-Jadaan highlighted the country's willingness to engage in discussions that could improve global trade, mentioning the euro and the Saudi riyal as potential alternatives to the US dollar.

As the largest oil exporter globally, Saudi Arabia has maintained a currency peg to the dollar and has been a key player in the petrodollar system since the 1970s. The kingdom aims to diversify trade relationships and reinforce ties with important partners, such as China.

Last year, during Chinese President Xi Jinping's visit to Riyadh, the two nations committed to closer collaboration in energy policy and exploration. Furthermore, China expressed interest in increasing oil purchases from the Middle East and conducting trade settlements in yuan.

Revival of Kenya's Interbank Currency Market

Kenya's central bank has shifted its approach, rejuvenating the nation's interbank currency market, as reported by Equity Group Holdings Plc CEO James Mwangi. President William Ruto recently announced that the central bank and commercial lenders are collaborating to eliminate distortions in the interbank market, which have worsened foreign exchange shortages in East Africa's largest economy.

Due to central bank pressures on commercial lenders to prevent rapid shilling depreciation, currency trading among Kenyan banks has declined recently. Mwangi explained, "The interbank market failed because we were not working together. The central bank's initiative now is to bridge the gap between the two. We are working together. We have seen early signs that the market is starting to function."

The revival of the interbank market has coincided with a sharp decline in the Kenyan shilling, which is experiencing its largest monthly depreciation since the COVID-19 outbreak was declared a global pandemic in March 2020. Factors such as dwindling foreign-exchange reserves, a worsening balance of payments, and increasing global interest rates that raise debt servicing costs have contributed to the currency's depreciation since June 2021.

GAROWE ONLINE