Foreign exchange (forex) plays a crucial role in Kenya’s economy, facilitating international trade, tourism, and investments. The history of forex in Kenya is intertwined with the country’s economic development, monetary policies, and global financial trends. From the barter trade era to modern digital forex platforms, Kenya’s forex market has undergone significant transformations.

This article explores the key milestones in the evolution of foreign exchange in Kenya, highlighting major regulatory changes, market shifts, and technological advancements that have shaped the industry.

1. Pre-Colonial and Colonial Era: Barter Trade to Formal Currency

Barter Trade (Before 1895)

Before the introduction of formal currency, Kenya’s indigenous communities engaged in barter trade, exchanging goods like livestock, grains, and crafts. Coastal traders interacted with Arab and Persian merchants, using cowrie shells and beads as early forms of currency.

Introduction of the East African Rupee (1895-1920)

During British colonial rule, Kenya adopted the Indian Rupee as its official currency in 1895. Later, in 1905, the East African Rupee was introduced, standardizing currency across British East Africa (Kenya, Uganda, and Tanganyika).

Shift to the East African Shilling (1921-1966)

In 1921, the East African Shilling replaced the rupee, pegged to the British Pound Sterling. The East African Currency Board (EACB) regulated forex, ensuring stability. Kenya’s forex activities were limited, mostly serving colonial administrators and traders.

2. Post-Independence: The Birth of Kenya’s Forex Market (1966-1980s)

Introduction of the Kenyan Shilling (1966)

After independence in 1963, Kenya sought monetary autonomy. In 1966, the Central Bank of Kenya (CBK) was established, introducing the Kenyan Shilling (KES). The shilling initially remained pegged to the US Dollar (USD) and British Pound (GBP) under the Bretton Woods system.

Collapse of Bretton Woods & Floating Exchange Rate (1971-1980s)

In 1971, the Bretton Woods system collapsed, leading to global forex fluctuations. Kenya initially maintained a fixed exchange rate, but by the 1980s, economic pressures forced a shift towards a more flexible exchange rate system.

Liberalization of Forex Markets (1990s)

Before the 1990s, forex trading was tightly controlled by the CBK. However, due to Structural Adjustment Programs (SAPs) by the IMF and World Bank, Kenya liberalized its forex market in 1993, allowing private forex bureaus to operate. This marked the beginning of a competitive forex industry.

3. The Rise of Forex Bureaus & Banking Sector Expansion (1990s-2000s)

Emergence of Forex Bureaus

Following liberalization, forex bureaus sprouted across Nairobi, Mombasa and Eldoret. These bureaus provided easier access to foreign currency, especially for travelers and businesses.

Banking Sector’s Role in Forex

Commercial banks like Barclays (now ABSA), KCB, and Standard Chartered expanded forex services, offering corporate forex solutions, letters of credit, and international wire transfers.

4. Technological Disruption: Mobile Money & Digital Forex (2000s-Present)

M-Pesa & Mobile Forex (2007 Onwards)

The launch of M-Pesa in 2007 revolutionized financial transactions, indirectly impacting forex by enabling cross-border mobile money transfers. Services like WorldRemit and Wave allowed Kenyans abroad to send forex directly to mobile wallets.

Online Forex Trading Platforms

The rise of online forex brokers (e.g., Forex.com, Pepperstone, and local brokers like Scope Markets) enabled Kenyans to trade currencies digitally. The CBK, however, warned against unregulated forex trading scams.

Forex Apps & Digital Bureaus

Companies like CurrencyFair, Nala, Wise (TransferWise), and Revolut introduced digital forex solutions, reducing reliance on physical bureaus.

5. Regulatory Developments & Modern Challenges

Central Bank of Kenya’s Role

• Forex Reserve Management: CBK maintains USD reserves to stabilize the shilling.
• Anti-Money Laundering (AML) Laws: Stricter regulations on forex transactions to curb illicit flows.

Recent Forex Scandals & Fraud

• Imperial Bank & Chase Bank Collapses (2016): Exposed forex malpractices.
• Forex Broker Scams: Unlicensed online traders defrauding Kenyans.

Dollar Shortages & Exchange Rate Pressures (2020s)

• COVID-19 Impact: Reduced forex inflows from tourism.
• Rising Dollar Demand: Importers struggling to access USD.

Conclusion: The Future of Forex in Kenya

Kenya’s forex market has evolved from barter trade to digital forex platforms. While challenges like dollar shortages and fraud persist, innovations in blockchain, mobile forex, and CBDCs (Central Bank Digital Currencies) could shape the future.

The forex bureau industry remains strong, especially in Nairobi’s CBD, but digital solutions are gradually taking over. As Kenya integrates deeper into global finance, its forex market will continue adapting to new economic realities.

Key Takeaways

1895-1966: Colonial currencies (Rupee, East African Shilling) dominated.

1966: Kenyan Shilling introduced; CBK established.
1993: Forex market liberalized; bureaus emerged.
2000s: Digital forex (M-Pesa, online trading) disrupted the market.
2020s: Dollar shortages, stricter regulations, and fintech growth.