Bank of Uganda should reign in speculators

THE Bank of Uganda (BOU) should reign in on speculators that it accuses of driving the shilling to record lows against the dollar.

Our neighbours Kenya have already started auditing and restricting their interbank transactions and as of close of last week, Njuguna Ndung’u, the governor of the Central Bank of Kenya, said he had discovered improper interbank trading and taken action against five giant banks.

In fact, up to $260m (sh648trillion) was exported by the five banks, pushing the exchange rate to 91.90, the lowest Kenya ever recorded.

Ndung’u said this pointed to speculative positions. He also noted that four big banks were holding large overseas positions.Within the same period, borrowing from the Central Bank of Kenya by strong banks went up.

The same could be happening in Uganda since most of the big banks are foreign.

Given the high global demand for the dollar, it can be tempting for anyone to make a quick buck through speculation.

Much as dollar inflows are not substantial to offset the demand, the erratic behaviour of the shilling does not reflect trading fundamentals. For example, do all the dollars that the Central Bank inject into the market go into traceable transactions or does it just go to some few financial institutions, which airlift it out of the country?

Even if we are a fully liberal economy, times like these require that we tighten our supervision. As Tumusiime Mutebile, the BOU governor indicated recently, he needs to effectively burn speculators’ hands.

He should walk the talk. The public should see something being done in terms of predictability of the exchange market.

Since the Central Bank surely knows where the loopholes are, they should quickly fix them up to prevent our businesses from going under due to the increasingly unpredictable exchange rate