The tyranny of ‘King Dollar’
I heard about dollar propaganda even before I knew what it was, I sang I will never go to Moscow any more, more more. There is a big fat policeman by the door, door, door. Who will catch you by the collar and ask you for a dollar, and in my juvenile mind I must have understood this dollar was something valuable.
But I scarcely had ideas about money, nor how it worked. I remember money as something for adults. If you were found with it you had been sent to a shop or had stolen it. It was something only adults could bestow upon you, maybe that drunk uncle. And even then, my mother would ‘keep’ it for me and I would never see it again.
You should have imagined the excitement when my cousin gave me a thousand Uganda shillings when we were moving to Busia. We were living in Kisumu at the time but after my father’s retirement, we moved upcountry. My cousin, who had this worthless 1000 Ugandan shilling note gave it to me since I could use it once if got to Busia which is split in half between Kenya and Uganda. I had owned, through my mother five Kenyan Shillings at the time so I figured a thousand Ugandan Shillings would be worth a fortune.
It was not. In Uganda, where people carry wads of cash openly as if it were paper, that note was something less than Kes40 at the time. I quickly learned that money could be worthless paper in one country and worth something in another, but that the value on its face was as fictitious as borders. I could never grasp the theories of money why the Kenyan pound or twenty shillings was supposedly of equivalent value to the British Pound at some point in history, the crazy money printing of the Kanu era or how the government kept stock of it all that even if a robber stole the money from a bank and hid it in a hole.
Urban legend had it that money was something sacred that the government would come for you if you burned or defaced it. So I was always fascinated with money in an experiential way and tend to collect coins from every country I visit just to remove some money out of circulation.
People who have gone to school have explained how money is the natural evolution of exchange in goods and services and it can be anything that is durable, divisible, widely trusted and can be used to store exchange value. Up until 2019 the old one thousand shilling note was currency but today it is a museum relic courtesy of the law.
“As you can imagine, a piece of paper becomes legal tender, at least for us here, through a gazette notice according to specific legal mandates by the Central Bank and consequently it also loses its value as a currency by the same process,” Dr Patrick Njoroge said during the demonetisation of Kenyan currency in 2019.
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“I too had fifty UK pounds, I had travelled to the UK and they withdrew that and introduced the polymer notes and today I cannot use it anywhere. I need to present myself in a Bank of England office in order to change this,” he said.
Today, the dollar is the most valuable money because the whole world needs it for trading with each other. You have to export more goods than you import so that you earn more dollars that you use up. But if you export less than what you import, you rely on dollars from other sources such as foreign direct investments and portfolio flows like dollar debts.
For Kenya, the Covid-19 lockdown meant dollars from exports and tourism dipped and debt markets became too expensive. And very quickly, the country is losing dollars. At the end of last year, the Central Bank was holding $7.9 billion dollar reserves which has been drawn down to $6.6 billion at the beginning of this month to pay debts and intervene in the market. Banks were holding $4.1 billion dollars by the end of last year.
As Americans reduce dollar volumes in the world by increasing interest rates, countries such as Kenya are finding it hard to maintain these reserves of the currency against the demand to keep cars and the economy on the road. Kenya has had to negotiate short-term credit deals with the oil-rich Gulf countries just to bypass the immediate dollar demand. We learnt from Tanzania recently that Kenya was also part of the bilateral trade settlement deals sealed by India allowing partner countries to trade in their own currencies.
A nursery rhyme propaganda that about Moscow and America can turn out quite differently in reality with America asking for the dollar. After America and its allies seized Russia’s $300 billion, the clamour for alternative currencies has gathered steam and is no longer a far fetched probability. Today the biggest question is whether the dollar will remain the world’s reserve currency and implications of this wild possibility.
While it will not be possible to sever Kenya from the dollar due to the huge external debt and capital imports, analysts say that the inhibitive costs will reduce what Kenya imports from abroad.
“There will certainly be a tapering out of demand for dollars for imports, people will have to decide, do I need to buy a Mercedes, would I buy it right now or I wait, I buy a Subaru or even buy locally instead because currency is too expensive,” a banking analyst told me recently.
