Currencies across East Africa have been experiencing significant volatility and sustained depreciation against the US dollar and other major foreign currencies. This trend has been driven by a mix of geopolitical and domestic pressures, including rising US interest rates, widening trade deficits, debt repayment burdens, and capital outflows from emerging markets. The result has been mounting pressure on foreign exchange reserves, elevated inflation, and a spike in the cost of servicing foreign debt across the region. 

According to the World Bank’s Africa Pulse report for 2024, the Kenyan shilling outperformed its continental counterparts to become the best-performing currency in Africa. The currency appreciated by 20% against the US dollar over the year, marking the highest gain across the region. However, the shilling experienced a marginal depreciation of 21.5 basis points (bps) year-to-date against the US dollar, closing the week at Ksh 129.6 as of February 21, 2025, compared to Ksh 129.3 at the beginning of the year. This contrasts with the 17.4% appreciation in 2024, while in 2023, 2022, and 2021, the currency depreciated by 26.8%, 9.0%, and 3.6%, respectively. The USD/KES exchange rate rose to 129.25 on July 3, 2025, up 0.04% from the previous session. In addition, over the past month, the Kenyan shilling has remained relatively stable, but it has declined 0.78% over the last 12 months.

The Rwandan Franc (RWF) depreciated sharply by 16.3% against the US dollar in the 2023/2024 fiscal year. According to John Rwangombwa, Governor of the National Bank of Rwanda, the decline was primarily driven by a rising import bill, as well as falling prices of key export minerals, including coffee and tea, which significantly reduced the country’s foreign exchange earnings. The USD/RWF exchange rate fell to 1,432.6030 on July 3, 2025, down 0.27% from the previous session. And, over the past month, the Rwandese franc has strengthened by 0.86%, but it has declined by 9.49% over the last 12 months.

According to Bloomberg, the Tanzanian shilling had depreciated by 8.9% in 2024, with a further 0.2% drop as of March 2025, reaching 2,645.10 per US dollar. This was its lowest performance since late November 2024. This sharp decline stemmed from increasing imports and mounting public debt associated with large-scale infrastructure projects. As of July 3, 2025, the USD/TSh exchange rate stood at 2,636.5400, a 0.13% decrease from the previous session. Over the past month, the Tanzanian shilling has strengthened by 1.44% and is up 0.70% over the last 12 months.

To mitigate the currency fluctuations, the governments and central banks of Tanzania and Rwanda have turned to foreign currency regulation to stabilise their economies amid global financial headwinds. However, Kenya doesn’t have similar rules. All exchange control laws were repealed in 1993, and the government moved to a fully market-determined exchange rate system. In relation to currency movement, according to the Legal Notice of 1998 issued under the CBK Act (Cap 491), persons leaving or entering Kenya are permitted to take out or bring into the country currency up to Ksh 500,000 or the equivalent of US$5,000 in foreign currency.

Currency regulation can help stabilise a country’s economy by reducing exchange rate volatility, preventing capital flight, protecting foreign reserves, and giving governments policy flexibility during economic crises. It can also support local industries by limiting imports. However, these controls have significant downsides. They can deter foreign investment, create black markets, lead to shortages of imported goods, raise transaction costs, and encourage corruption. Over time, they may distort market signals, slow down trade, and hinder the development of financial markets. While useful in the short term, currency controls are not a substitute for sound economic management and are best used temporarily alongside broader reforms.

Quite recently, the European Commission classified Kenya as a high-risk country for money laundering and terrorism financing. The decision comes as Kenya’s Financial Reporting Centre (FRC) flagged a sharp uptick in suspicious financial activity in its 2024 annual report. Kenya recorded 7,193 suspicious transactions related to money laundering, an 18.73% increase from 6,058 the previous year. Transactions linked to terrorism financing also increased significantly, with 94 reports filed in 2024, up from 72 in 2023, representing a 30.55% year-over-year rise. Capital markets and securities operators also came under scrutiny, reporting 93 suspicious transactions last year, up from just 26 in the prior year. All these cases were linked to concerns about money laundering.

While the European Union did not directly attribute its decision to the FRC data, the Commission cited ongoing weaknesses in Kenya’s Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) system. These include limited prosecutions and enforcement actions, insufficient regulation of virtual assets and non-profits, and the lack of a robust risk-based supervisory framework. Being placed under scrutiny over money laundering and terrorism financing can restrict the country’s access to international financial markets.

Kenya is known to be relatively liberal when it comes to the use of foreign currency in the country. Also, as Kenya combats the increasing cases of money laundering, should we consider currency regulation as a mitigation measure? The question that remains is whether Tanzania and Rwanda’s move to regulate the use of foreign currency will have a significant impact. However, as we consider this, it’s also important to weigh the pros and cons.