Despite an open capital account framework that facilitates frictionless admission and exit of foreign currencies in Uganda’s financial system, a spot-check in Kampala’s downtown forex bureaus reveals an apparent scarcity of Kenya shillings among forex dealers.
Panic sale by Ugandan banks and currency traders has resulted in a dramatic devaluation of Kenya shilling relative to the US dollar, as well as a shortage of the Kenyan unit. As a result, Kenya shilling to Uganda shilling exchange rate fell from an average of Ush30 to a record low of Ush24 last month. However, the Kenya shilling rebounded marginally to Ush26/27 versus the Uganda shilling.
For fear of incurring trading losses on their books, Ugandan banks and forex dealers chose to sell the majority of their Kenya shillings in exchange for dollars. This explains why Kenyan shillings are scarce,” said Allan Lwetabe, Investment Director of Uganda’s Deposit Protection Fund.
