Inflation is the measure of a country’s currency ability to purchase goods and services. It is often expressed as a percentage and it indicates a decrease in the purchasing power of that particular currency. Also Kenya has been going through highly inflationary periods. Fortunately there some solutions these days: save your money in harder currencies such as USD, EUR or even Bitcoin.

How Kenya Became Independent

Kenya gained independence from Britain in December 12, 1963. The road to independence began in the 1950s where Kenyan militants; the Mau Mau fought the British soldiers. Mau Mau members undertook violent attacks against the Europeans leading to declaration of state of emergency in 1952 where many Kenyan leaders were arrested including Jomo Kenyatta. From 1952 to 1956, there was massive detention of members of the Kikuyu ethnic group who were against the Europeans.

It was until 1957 when the British allowed Kenyans to be elected to the Legislative Council. By 1960, Kenyans were the majority in the council. Britain worked with the African leaders to establish ways of transition to independence. In 1960, the first constitution was drafted and an election was scheduled for May. The Kenya African National Union won a majority of the seats leading to its leader Jomo Kenyatta being elected as the first Prime Minister.

History of the Kenyan Shilling

During colonialism, Kenya was part of the British East Africa, which included Tanganyika and Uganda. The British East Africa block by then used the British currency. At first, the British introduced the rupee that was later replaced by African florin in 1920. The currency only lasted one year and then replaced by East African Shilling. After Kenya’s independence on December 12, 1963, Kenya became a republic in 1964. Kenya continued to use the East African shilling until 1966 when it was replaced by the Kenyan shilling at the rate of 1 to 1.

The Kenyan shilling is the form of coins and notes. There are 1, 5, 10, 20, 40 shilling coins. However, the 40 shilling coin was scrapped but it is still in circulation. The 40 shilling coins was issued in 2003 and it had the portrait of the then President Mwai Kibaki. It was issued during the commemoration of the fortieth anniversary independence since 1963. Kenyan shillings notes range from 50, 100, 200, 500 and 1000 shilling notes.

Portrait of Kenya’s first president Jomo Kenyatta on 50 shilling note.

Kenya’s Inflation

The Kenyan shilling has been faced by high level of inflation and its value has been constantly changing. In 2011, Kenya registered the most dramatic fall in the value of the shilling. The shilling slumped from 83 shillings for every USD to 100 shillings per USD. In September 2015, the shilling fell once again from 100 KES for every 1 USD to 105 KES for every USD. It then recovered in December 2016 to 102.1 for every USD. Since July 2015, the Kenyan shilling has been ranging from 100 and 105 KES against the USD.

Transition to the New Currencies in Kenya

The Central Bank of Kenya issued new notes and coins in 2018 that do not have a human portrait. The new currencies have images of Kenya’s nature and wildlife. In an attempt to curb corruption, money laundering and counterfeits, the Governor of Central Bank of Kenya issued a notice that the old Ksh 1,000 will no longer be considered legal tender taking effect from October 2019.

It has been observed that the directive by the governor will lead to high rate of inflation. People holding money from illicit gains do not deposit it into bank account; instead they keep the money in their homes. Due to the October deadline of exchange of old Ksh 1,000 notes with new Ksh 1,000 notes, people holding money are on the rush to meet the deadline. This has led to excess money in circulation. Whether this is a good move for eradicating corruption, the other question should be about inflation. Therefore inflation is inevitable as criminals rush to clean up dirty money.

The other anticipated short run impact [of the introduction of new currencies] is on inflation or the rise in general prices. This may be triggered by the rush to get rid of the old currencies leading to increased liquidity and putting inflationary pressure on prices of inputs, intermediate products and finished goods and services.

A reports by the Kenya National Bureau of Statistics showed that the Consumer Price Index (CPI) increased by 1.60 percent. In February 2019, the CPI stood at 198.91 while in March 2019, it stood at 198.91. The overall Kenya’s year inflation as at March 2019 is at 4.35 percent.

Inflation impacts consumer spending.

Protection Against Inflation

It is uncommon for Kenyans to open foreign currency bank accounts. However, it is important to open a foreign currency account to protect one’s funds against high inflation rate. Saving money in form of dollars and other stable currencies such as Euro will ensure that you are not affected by inflation. You can open USD, EUR and GBP in many of the Kenyan banks such as Equity Bank, Co-operative Bank, Barclays Bank and I&M Bank. These currencies’ value rarely goes down.

.. this new asset is a possible tool for countering increasingly negative yields and diversifying savings. A 1 to 5% allocation lets you simultaneously cordon off risk to a small percentage of your portfolio but retain exposure to considerable upside. It’s the barbell doctrine incarnate. – Bitcoin for safety, James O’Beirne.

If you are saving money for a long period of time it’s advisable to look into Bitcoin. Bitcoin is extremely volatile, meaning that it goes up and down a lot, but if you look at a longer period of time its value has gone up massively and it is expected to go up much higher because its digitally enforced limited supply. We don’t suggest to put all your savings into Bitcoin but an amount between 1% and 5% is a good hedge against national inflation and global instability.

Conclusion

To manoeuvre the unpredictable Kenya’s inflation, it is advisable to open a bank account in stable currencies such as USD, EUR or GBP. Alternatively, you can buy Bitcoin as a means of saving money.