One week on since news broke that the Central Bank of Kenya (CBK) was negotiating with the Bank of England (BoE) to accommodate Kenya’s gold reserves in London, the move has rallied public outcry and acrimony from all sides.
Nairobi lawyer Abdulhakim Dahir has penned an open letter to CBK Governor Kamau Thugge requesting that the negotiations be halted until the total information regarding the deal is made public.
Dahir has identified five key issues with the deal transparency, concerns about costs, legal requirements, and what he calls the “sovereignty risks” of holding national assets abroad.
The talks should immediately be halted until the nation holds a national dialogue and the conditions of the agreement are published to be scrutinized,” Dahir wrote.
He also requested that the CBK carry out a full cost-benefit analysis, weighing the possible gains of working with the BoE against the long-term geopolitical cost.
Among his demands, Dahir required the government to develop a domestic gold storage facility instead of subcontracting the exercise to an international institution.
He also required the draft storage arrangement to be tabled in Parliament and published before a final decision is made.
CBK Defends the Move
Last week, Governor Thugge confirmed that the CBK indeed had been in talks with the Bank of England “and other institutions” in a bid to determine where and how Kenya’s future gold reserves would be kept.
Kenya wants to start buying gold whose global prices have more than doubled over the last two years to diversify its reserves, which are currently dominated by US dollars.
“We have talked to the Bank of England and banks on how we do it, where we are going to hold it, that kind of things,” Thugge clarified.
He nonetheless clarified that the move is not a conscious effort to shun the dollar, but diversification of Kenya’s foreign holdings.
The gold would be purchased out of the foreign reserves of the nation, which are around $11 billion (Ksh1.4 trillion), the CBK said. Thugge did not specify how much of that would be converted to gold.
Apprehension Over Economic Vulnerability
Dahir, in his statement, warned that holding some of Kenya’s resources outside the country put the nation at risk of political and economic threats beyond its control.
If Kenya ever finds itself in a geopolitical standoff or under international sanctions, our gold can be confiscated or frozen,” he cautioned. “That would put us at economic risk, with little or no recourse under the law.”
He also indicated that it would erode national sovereignty since Kenya would no longer physically hold a key national resource.
“This creates a dangerous dependence,” he wrote. “In times of crisis, access to our own reserves could be inhibited or delayed on the basis of foreign policies or international relationships.”
Gold Prices and Global Context
Prices of gold have risen to record highs, shooting over $4,200 (Ksh542,640) an ounce on bets of US Federal Reserve interest rate reductions and growing debt in mature economies.
The boom can provide a tempting investment bet, but experts such as Thugge have cautioned that care must be taken, citing the fact that the market remains volatile.
The Bank of England, established in 1694, is the second-oldest central bank in the world and is responsible for managing the UK’s monetary policy, financial stability, and reserves.
With controversy still raging, the CBK is at a crossroads between discovering means to secure and diversify Kenya’s reserves and maintaining public confidence and protecting national sovereignty.
