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Revisiting the Obama Legacy

His whistle-stop low-key visit to Kogelo may have puzzled some, his rousing speech marking Madiba’s centenary may have been pitch-perfect, but while Obama was a class act (especially when compared to Trump), his capitulation to Wall Street, his foreign policy blunders in Libya and Syria, his drone counter-terrorism and his sustained attack on independent media and whistle-blowers raise disturbing questions about his real legacy. By RASNA WARAH.  

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Revisiting the Obama Legacy

Unlike his last visit to Kenya in July 2015, when large sections of Nairobi were effectively under lockdown and when the country virtually came to a standstill when the “son of Kogelo” returned to his “homeland”, Barack Obama’s “homecoming” this week did not generate as much excitement or gushing tributes. This was expected, as the former United States president was not in Kenya on an official visit but was here to open a centre for youth in his father’s village, a brainchild of his half-sister Auma Obama. Besides the “welcome home” slogans that usually accompany such visits, Obama’s presence in the country hardly generated the kind of euphoria that was evident the last time he came to Kenya – this time the euphoria was more apparent in South Africa, where Obama delivered an inspiring lecture on the anniversary of Nelson Mandela’s 100th birthday after his Kenya visit.

Not to mention that his visit coincided with a highly controversial and embarrassing summit in Helsinki that saw President Donald Trump essentially throw his own intelligence services under the bus in the presence of the Russian President Vladimir Putin, who himself spent some time as a KGB intelligence officer. The contrast between the megalomaniacal, misogynistic and fundamentally dishonest Trump and his predecessor – the charismatic, intelligent and eloquent Obama who has rock star appeal – was painfully evident. When Obama works a room, you can be sure he will gain more converts. His messiah-like messages have silenced even his most vocal critics. On the other hand, Trump’s utterances generally elicit shock, followed by a deep sense of trepidation. After that bizarre summit in Helsinki, Americans and the world are grappling with the idea that the US president might have been “captured” by the Russian state.

And unlike Bill Clinton and Trump, there is also no whiff of a sexual scandal surrounding Obama. Obama never really knew his Kenyan father, who abandoned him when he was just a toddler, but this childhood trauma does not seem to have had a damaging effect on his own relationship with his wife Michelle and his two daughters. Everyone knows, and can see, that he is a man who is deeply committed to his family and is not threatened by strong women.

Obama brought a rarefied dignity to the Oval Office. He will be remembered for his reflective leadership style and the seriousness with which he took his responsibilities as leader of the most powerful nation on earth. He has definitely earned a name in the history books for not just being the first black (or rather, mixed race) president of the United States, but also for mending decades-old fences with countries such as Cuba and Iran. He will be remembered, among many of his other accomplishments, for advocating for the rights of all people, be they racial minorities, gays, people with disabilities or women.

Obama never really knew his Kenyan father, who abandoned him when he was just a toddler, but this childhood trauma does not seem to have had a damaging effect on his own relationship with his wife Michelle and his two daughters. Everyone knows, and can see, that he is a man who is deeply committed to his family and is not threatened by strong women.

However, there are many things that Obama failed to accomplish, and many things that he actually made worse. Despite his African heritage, he failed to bridge the racial divide in America; some believe that race relations may have worsened under his tenure, perhaps the result of a backlash against his presidency and against black people’s aspirations for equality. This backlash is probably what got his successor Trump elected. Racism has now become an epidemic in America, and has demolished the myth that the US is a land where everyone – regardless of race – enjoys equal freedoms and rights. While it was not Obama’s job to fix centuries-old prejudices in America, he failed to address the issue of racism in America forcefully.

But it is Obama’s foreign policy that has left many of his supporters puzzled. Obama strengthened Clinton’s “no American boots on the ground” policy in foreign conflicts by intensifying drone attacks in places such as Pakistan, Yemen and Somalia, which are believed to have led to many civilian deaths and which are said to have led to more radicalisation. Most people are not aware of the fact that Obama used more drones against terror suspects than his predecessor George Bush, who was more prone to engage American troops in direct combat in places such as Iraq and Afghanistan.

There are many things that Obama failed to accomplish, and many things that he actually made worse. Despite his African heritage, he failed to bridge the racial divide in America; some believe that race relations may have worsened under his tenure, perhaps the result of a backlash against his presidency and against black people’s aspirations for equality. This backlash is probably what got his successor Trump elected. Racism has now become an epidemic in America.

When Barack Obama became president, the American public believed that the US government would focus on the economy and scale down its wars and counterterrorism operations. However, while Obama did bring back troops from Iraq, as he promised, the war on terror became more clandestine. He increased the use of drones that targeted suspected terrorists (which also led to several deaths of innocent civilians, including children) and continued with mass electronic surveillance. Yet despite the billions spent on intelligence and security, groups such as the Islamic State still managed to take root under his watch. And Guantanamo Bay, the US detention facility in Cuba established for terrorist suspects, still remains open, though the number of detainees have fallen significantly from about 700 under George Bush to just 40 today.

A few years ago, The Washington Post reported that the Obama administration had built a “constellation of secret drone bases” in the Arabian Peninsula and the Horn of Africa, including one site in Ethiopia, ostensibly to help the US better able to monitor and control terrorists, and also allow the superpower to gain access to the region’s natural resources. Drone activity in Somalia apparently intensified in the country between June and September 2011, weeks before Kenya’s invasion of Somalia in October 2011. Obama’s supporters may argue that targeted drones are less damaging than direct conflict, but those who have suffered from these attacks do not quite feel the same way.

The Obama administration’s support of opposition groups in Syria has also been criticised for turning what might have been a short civil war into a long-drawn conflict that gave birth to terrorist organisations (which masqueraded as moderate Islamist rebel forces) such as the Islamic State in Iraq and Syria. No one knows yet how or where the chips in Syria will fall, but history may judge Obama harshly for his intervention there.

But perhaps Obama’s most harmful intervention in a foreign country was his decision to support a “regime change” in Libya. While most agree that Muammar Gaddafi was a dictator, under his strong-man leadership style Libya remained a stable and prosperous country. When US, British and French warplanes bombed Libya in the name of defending human rights and when Gaddafi was killed, the country descended into chaos and anarchy as factions fought each other for supremacy, just like what happened in Iraq when George Bush decided to lead a regime change there.

The countries that participated in the Libyan bombings are not likely to admit this but there would be no flood of refugees entering Europe via Libya if Gaddafi was still in charge. His regime kept Europe safe from human traffickers who are now exploiting vulnerable Syrians and poor Africans and making a fortune in the process. I am sure this uncomfortable truth doesn’t sit well in Obama’s conscience and will haunt him for a long time to come.

Meanwhile, the jury is still out on Obama’s decision to find and kill Osama bin Laden. Could it be that this killing was extra-judicial? Bin Laden’s sons have accused Obama of violating basic legal principles by killing an unarmed man, shooting his family and disposing the body in the sea. Bin Laden’s son Omar, who has publicly denounced violence of all kinds, has raised the question of why his father was not arrested and tried in a court of law, but his voice was muted by the self-congratulatory stance of the Obama administration and its cheerleaders who viewed the killing as justified in line with the US government’s war against terror.

Critics of Obama also point out that press freedom worsened under his leadership and whistleblowers were unfairly vilified – despite Obama’s stated commitment to protect freedom of expression. Salon.com commentator Glenn Greenwald has said that the Obama administration launched a broad (and possibly unprecedented) war on whistleblowers and investigative journalists, including harassing WikiLeaks supporters by detaining them at airports and seizing their laptops without warrants.

Former New York Times reporter David Shipler has chronicled the many ways the Obama administration created an atmosphere of fear among journalists and ordinary citizens, including by renewing the notorious Patriot Act that enhanced the US government’s surveillance powers and gave security agents authority to comb databases and emails of suspected criminals and terrorists. Shipler claims that press freedom weakened under Obama and that the US president allowed draconian search-and-seizure methods used by the very dictators he often denounced.

“The most odious aspect of this Climate of Fear is that it fundamentally changes how the citizenry thinks of itself and its relationship to the Government. A state can offer all the theoretical guarantees of freedom in the world, but those become meaningless if citizens are afraid to exercise them. In that climate, the Government need not even act to abridge rights; a fearful populace will voluntarily refrain on its own from exercising those rights,” said Greenwald, who gained notoriety after his disclosures of classified documents by the American whistleblower Edward Snowden that were published in The Guardian newspaper in 2013.

Former New York Times reporter David Shipler has chronicled the many ways the Obama administration created an atmosphere of fear among journalists and ordinary citizens, including by renewing the notorious Patriot Act that enhanced the US government’s surveillance powers and gave security agents authority to comb databases and emails of suspected criminals and terrorists. Shipler claims that press freedom weakened under Obama and that the US president allowed draconian search-and-seizure methods used by the very dictators he often denounced.

Meanwhile, Snowden is still holed up in Russia because he fears he will be arrested if he returns to the United States. Snowden revealed to the world how the terrorist bogeyman has been used to conduct mass surveillance and to spy on civilians through mobile phones and the Internet. These activities are clearly unconstitutional and violate the US Bill of Rights, but they are tolerated because the American public has been made to feel sufficiently afraid to not ask too many questions.

In The Rise of the American Corporate Security State, Beatrice Edwards, the Executive Director of the Washington-based Government Accountability Project, shows how the withdrawal of Americans’ rights, including their right to privacy, has been accomplished because Americans have been repeatedly told that they are facing imminent danger. Americans have thus willingly surrendered their civil rights because they are frightened. This clampdown on civil rights intensified during George W. Bush’s administration but became more secretive under Obama’s.

The nexus between government and big corporations has also been strengthened. The war on terror has been extremely lucrative for private corporations providing security and intelligence services. Edwards believes that clandestine electronic warfare is not going to go away any time soon, as the business of intelligence has proved to be extremely profitable for certain corporations. US corporations and the US intelligence agencies are bedfellows in the deal. What’s worse, because this war is silent and invisible, Americans don’t know where or when it is being waged. This is a truly chilling scenario.

Since 9/11, the United States has spent more than $500 billion on intelligence, of which 70 per cent is spent on contracts with private corporations. And because security contracts are deemed to be “secret” in the interest of national security, no one knows what the money is spent on. Edwards shows how increasing budgets for security and intelligence agencies have coincided with greater protection for rogue bankers and financial institutions, as happened during the 2008 financial crisis when Obama bailed out the very institutions that created the crisis in the first place. While Al Qaeda leaders became the targets of intense manhunts, illegal detention and execution, the millionaires who made thousands of people homeless and crashed the economy got away scot-free. Meanwhile, whistleblowers such as Snowden were deemed traitors for exposing unconstitutional and illegal surveillance of civilians around the world.

Edwards admits that Obama is not entirely to blame for this state of affairs because every US president is hostage to the big corporations and to what she calls “the Deep State”, a rogue branch of the US government that does not respond to the president, Congress or the courts. (Trump has given the Deep State a new meaning by referring to all those opposed to his policies as belonging to it.)

Since 9/11, the United States has spent more than $500 billion on intelligence, of which 70 per cent is spent on contracts with private corporations. And because security contracts are deemed to be “secret” in the interest of national security, no one knows what the money is spent on […]increasing budgets for security and intelligence agencies have coincided with greater protection for rogue bankers and financial institutions, as happened during the 2008 financial crisis when Obama bailed out the very institutions that created the crisis in the first place. While Al Qaeda leaders became the targets of intense manhunts, illegal detention and execution, the billionaires who made thousands of people homeless and crashed the economy got away scot-free.

Apologists for Obama claim that he is a pragmatist and could only do so much in a country where partisan politics and Congress determine government policy. Others say that Obama is just an American liberal, not the revolutionary that so many imagined him to be, and so cannot be judged for the radical reforms he failed to bring about but who can be credited for maintaining the model of freedom and democracy that is cherished by the majority of Americans.

The real struggle that Americans and the world faces is not about privacy versus security but about democracy versus tyranny. When large numbers of people around the world willingly give up their rights and freedoms in the name of counterterrorism, they create the perfect conditions for the emergence of dictatorship.

However, Edwards says that the real struggle that Americans and the world faces is not about privacy versus security but about democracy versus tyranny. When large numbers of people around the world willingly give up their rights and freedoms in the name of counterterrorism, they create the perfect conditions for the emergence of dictatorship.

This dictatorship has now manifested itself in the Donald Trump presidency – which may lead future historians to ponder whether Obama’s presidency set the stage for this alarming state of affairs. Obama is no doubt a wiser and much more intelligent president than Trump, but he did not manage to reverse or extinguish the dystopian ideology that led to the rise of Trumpism and its tendencies towards fascism that the world is now witnessing.

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Rasna Warah

Ms Warah, the author of War Crimes, a sweeping indictment of foreign meddling in Somalia, and A Triple Heritage, among several other books, is also a freelance journalist based in Malindi, Kenya.

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Visas, Africanists and White Privilege

For more than a generation the term ‘Africanist’ has meant an implicit stranglehold by a mostly white and male cadre of academics and Western institutions on the tenor and direction of discourse on African affairs in the global academy and sectors such as conservation. RASNA WARAH argues that authentic African voices and narratives are and will continue to demonstrate the absurdity of this situation and herald the beginning of a substantive change of the old order.

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Visas, Africanists and White Privilege

An article published in Africa is a Country has generated some discussion online on the wisdom of holding conferences on Africa in Western countries – places that are becoming less accessible to African scholars, writers and researchers because of their punitive, African-unfriendly visa requirements. Haythem Guesmi, in the article titled “The gentrification of African studies”, wondered why the African Studies Association’s annual meeting and the annual conference of the African Literature Association are routinely held at North American venues.

Guesmi, a PhD candidate in English Studies at the University of Montreal, was commenting on the absurdity of situations where conferences focusing on African issues are held in Europe or North America and have panellists exclusively from the Western world – people who by virtue of their skin colour or nationality have easy access to these venues, a privilege that citizens of African, Asian or Latin American countries do not have. (A reason why I get so irritated when Kenyans who have acquired US, Canadian or European passports ask me why I am obsessed with citizenship. One so-called Kenyan activist even had the audacity to tell me that if she got into trouble with the Kenyan authorities she would immediately rush to her embassy for protection – a luxury she knows I do not have because of my Kenyan nationality.)

Guesmi, a PhD candidate in English Studies at the University of Montreal, was commenting on the absurdity of situations where conferences focusing on African issues are held in Europe or North America and have panellists exclusively from the Western world – people who by virtue of their skin colour or nationality have easy access to these venues, a privilege that citizens of African, Asian or Latin American countries do not have.

Gone are the days when leading academics from around the world were invited to the University of Dar es Salaam – the incubator of revolutionaries in the 1970s and 80s – to present their research findings; today, African scholars need to be endorsed by a Western institution before their research can be viewed as credible. (Given the declining academic standards at many African universities, this is understandable, but it still doesn’t explain why seminars and conferences also have to take place in the West.)

“This reality,” wrote Guesmi, “has generated numerous difficulties for Africa-based academics and scholars who are now forced to pay exorbitant, non-refundable visa fees in foreign currencies not always available to them and struggle to secure international travel funding. The resulting displacement and exclusion of continent-based Africanists have undermined the true purpose and identity of African studies; a pathological process commonly identified as gentrification.”

The marginalisation, or what Guesmi calls “gentrification”, of African scholars from the field of African studies has led to an absence of Africans from public discussions and intellectual debates. “In the news or in public venues, there is an embarrassing preference to invite white Africanists to comment on every single topic, ranging from women’s oral culture all the way to electoral violence, and anything in between,” noted Guesmi.

Representation and misrepresentation

However, this form of exclusion and marginalisation also exists within the continent. For instance, in a recent article, Mordecai Ogada lamented the near-absence of black Africans in the field of conservation in Kenya. “Wildlife conservation is the one field where highly qualified black Africans are routinely supervised by white practitioners of far lesser technical pedigree or experience,” he wrote.

Those of us who are living and working in Africa are constantly reminded of how little our views or opinions are valued when we attend conferences where all the leading “experts” on a panel are white or foreign. I have witnessed this phenomenon on several occasions, particularly when the topic is about Somalia. I dare not claim to be an expert on Somalia (even though I could claim expertise, having written two books about the country) but I have often been in situations where the so-called Somalia “experts” in panel discussions have only a limited or one-sided view of the war-torn country, yet they are the ones who are flown into Nairobi to speak at such events. Somalis tend to remain mere spectators, and their views on their own country are hardly ever sought. (The fact that these seminars and conferences are taking place in Nairobi, and not in Mogadishu, is a problem in itself.)

Wildlife conservation is the one field where highly qualified black Africans are routinely supervised by white practitioners of far lesser technical pedigree or experience

This means that Somalis are not allowed to be experts even on their own societies. This is the reason why Somali voices have been rendered largely invisible in much of the academic scholarship and literature on Somalia, which imply that Somali scholars as not good enough to be taken seriously – especially on subjects to do with their own country. As one of many examples, an anthology titled Globalizing Somalia published in 2013 has not even one Somali contributor; all except one of the authors is white and either American or European.

Sometimes, for the sake of “diversity” or “representation”, a few Somali scholars or analysts may be included in a collection of essays or in panel discussions. However, in my experience, only those scholars or analysts who do not deviate too far from traditional narrative about Somalia (civil war, terrorism, piracy, pastoralism and the like) are invited to contribute; in other words, they gain visibility through conformity.   Radical thinkers, or those who actively reject racist of distorted representations of Somalis, are rarely invited.

This means that Somalis are not allowed to be experts even on their own societies. This is the reason why Somali voices have been rendered largely invisible in much of the academic scholarship and literature on Somalia, which imply that Somali scholars as not good enough to be taken seriously – especially on subjects to do with their own country. As one of many examples, an anthology titled Globalizing Somalia published in 2013 has not even one Somali contributor; all except one of the authors is white and either American or European.

For example, when a journal called Somaliland Journal of African Studies came out recently, many Somali academics wondered why none of the researchers and academics on the journal’s editorial and advisory boards were ethnic Somalis. Markus Hoehne, a member of the journal’s advisory board, explained the absence of Somalis by arguing that he “did NOT come accross [sic] many younger Somalis who would qualify as serious SCHOLARS – not because they lack access to resources, but because they seem not to value scholarship as such.”

Under the Twitter hashtag #CaddaanStudies (caddaan means “white” in Somali), Somali scholars reacted furiously to his remarks, and released a long list of Somali academics who had done serious research at prestigious institutions and who were recognised as experts in their fields (albeit by a small, but growing group of their peers). Safia Aidid, a historian, said that Hoehne’s comments reflected “a mindset in which the Somali is rendered passionately partisan, while the non-Somali researcher remains worldly and detached in his analysis.”

The other disturbing reality is that African scholars who do not wish to be “Africanists” and who would like to focus their research on countries or regions outside the African continent are even less likely to be taken seriously. If a Ugandan scholar studies the archaeological history of Scotland, for example, he might as well say goodbye to any recognition for his work. No Scottish institution will invite him to present his findings and his work will hardly ever be cited by researchers. This unfortunate reality forces most African academics to focus their work exclusively on Africa – a restriction that is never placed on European or North American “Africanists”, who are presumed to know more about Africa than Africans. The few African voices whose opinions are sought tend to be those who have more access to the Western world, or who are considered the “acceptable faces” of African intelligentsia, which leads to a homogenous view of the continent, a view that in essence reinforces negative stereotypes about Africa and which is unlikely to question the authority (and superiority) of Western scholarship.

White privilege and issue-based activism

The idea that Africans are not qualified to research or write about things non-African is one that the writer Aminatta Forna has grappled with. Forna, who has been described as a Sierra Leonean writer, even though she is half-Scottish and was born in Scotland, wonders where the “orthodox idea” that writers must only set stories within their own country of origin came from. “Writers do not write about places, they write about people who happen to live in those places,” argued Forna in an article published in the UK’s Guardian newspaper. “This is something that the labellers and their labels don’t understand either. [Chinua] Achebe did not ‘write about Africa’, he wrote about people who happen to live in Igboland. Likewise, I do not ‘write about’ Sierra Leone or Croatia; those places are settings for my characters.”

However, what writers such as Forna, who are based in the West and who hold European or North American citizenship, fail to recognise is the imbalance created by “white privilege” (which Forna also benefits from given that she has a white mother and grew up in the United Kingdom) that determines who can say what about where and how. White privilege allows white writers from Europe or North America to become experts on the rest of the world, but people who are not from the bastions of the Anglo-Saxon world are confined to being experts only of their region, their country of origin or their ethnic group – and even then, they are often dismissed as amateurs or not scholarly enough.

It is also important to recognise that Western academics and writers have access to more financial resources and influence than African academics and writers, and so their work has more chances of being published, which could explain the dearth of African contributors in scholarly journals. The lack of credible and respected journals based at African institutions also plays a part in devaluing African scholarship. And those that exist on the continent are almost entirely dependent on Western funding. This allows the Western world to set the agenda on what kind of scholarship on Africa is acceptable and what isn’t. Western institutions that fund research on the continent decide the tone, content and focus of research – and quite often the conclusions.

This also applies to activism, particularly on women’s rights, which tends to be issue-based, rather than taking a more holistic approach to the challenges facing Africans and how these might be overcome. As the Sudanese women’s rights activist Hala Al-Karib noted in a recent article published on the Al Jazeera website, “most Northern institutions reduce women’s rights and violations against women to a one-dimensional fight against FGM [female genital mutilation]…In this context, the rhetoric of gender mainstreaming becomes a box-ticking exercise while minimising the root causes of women’s subordination and the politics behind the subordination. The few publicly-aware activists become the outsiders, bearers of bad news, and are often labelled difficult – too political.”

Issue-based activism also tends to obscure the historical reasons for a problem. When I was in Kabul, Afghanistan, in early 2002 as part of a United Nations mission to assess the country’s developmental needs after President George Bush invaded the country following 9/11 and expelled the woman-unfriendly Taliban from the capital city, the chatter in the UN compound where UN officials and NGO workers were living was all about how the international development community could help Afghani women to abandon their burqas. For them, the light blue veil donned by women in the country symbolised everything that was wrong with Afghanistan; no one asked how the United States contributed to the establishment of the Taliban in the first place through its support of the Mujahideen during the war with the Soviets in the 1980s.

When poverty, underdevelopment or human rights abuses are depoliticised – i.e. taken out of the realm of politics – they become problems that have technical, not political, solutions, which Al-Karib believes is “extremely dangerous for the future of African women”. She says that the depoliticisation of the women’s movement in Africa “has already influenced generations of younger women in our part of the world, causing them to aspire to work for NGOs on women’s rights to claim social and economic privileges rather than making any meaningful change”.

Fortunately, a new group of young African writers and academics are emerging and creating their own spaces. The Kenyan literary journal Kwani? emerged as a response to the fact that few African writers had a space at home or abroad to publish their work. The online magazine The Elephant is another example of a publication that is filling an intellectual and journalistic void that mainstream East African newspapers, which are increasingly being captured by the state or are heavily skewed towards commercial interests, are not filling. Africa-based research institutions, such as The Council for the Development of Social Science Research in Africa (CODESRIA), which has its headquarters in Dakar, Senegal, are also having an impact in global academic circles. Unfortunately, because most of these are funded by Western donors, their long-term sustainability continues to remain precarious.

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HOW TO RE-INVENT MONEY: Notes for cryptocurrency techno-warriors

Ultimately money is a social contract DAVID NDII argues. And though Bitcoin and cryptocurrencies may yet emerge as transformative disrupters of human and economic relations, certain fundamentals need to be in place if they are not to go the way of other fads past. History teaches us that ultimately monetary delinquency is one of the more reliable harbingers of revolution. If government makes a mess of our money, we can always behead the King.

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HOW TO RE-INVENT MONEY: Notes for Kenya’s cryptocurrency techno-warriors

Ten years ago, an anonymous person or people known as Satoshi Nakamoto published a paper announcing a monetary innovation described as a peer-to-peer electronic cash system. “Peer-to-peer” means a system of exchange that does not require intermediaries, such as banks, to function. When we use a card to buy something at the supermarket, the holder’s account is debited and the account of the merchant is credited. There are at least three intermediaries to this transaction namely, the card-holder’s bank, the supermarket’s bank and the card issuer all who make some money from it, and there is of course the governments which are the ultimate guarantors of the payment systems we use.

The system devised by Satoshi Nakamoto known as Bitcoin became the progenitor of cryptocurrencies. Instead of the accounting systems of banks and other intermediaries, the cryptocurrency systems use a digital public register, known as a blockchain. When people transact, the transaction appears on the public register. The transaction’s security and validation services that we rely on: banks, card issuers, central banks and lately telcos and “fintechs” in the case of mobile phone payments platforms, is done by techies called “miners” who compete to verify transactions by solving puzzles. The miner who completes the verification first earns some bitcoins. So in effect, the claim that there is no third party intermediary is not quite accurate. What they have done is to replace centralized systems and authorities with a decentralized free-for-all system.

Bitcoin appeared have settled at around $1000 up until January 2017, when it began what was to become an unprecedented rise. In December 2017 it peaked at a little over $19,400. A year later it is down to under $4000. Bitcoin is now billed as the most spectacular financial bubble on record.

At the height of the cryptocurrency boom, enthusiasts were declaring fiat currencies history. Fiat money is a currency decreed by governments to be the “legal tender” in its jurisdiction and is one of three types of money that have existed in history. The other two are commodity and credit money. Commodity money is something of intrinsic value such as precious metals that is generally accepted for payment. Credit money arises when debt instruments typically issued by a reputable party such as a bank, wealthy enterprise or government becomes accepted for payment. The word “banknote” originates from the “free banking era” in the US, when promissory notes issued by banks were generally accepted as means of payment. Today’s prominent fiat currencies such as the US dollar began life as promissory notes issued by governments mostly to finance wars.

Bitcoin appeared have settled at around $1000 up until January 2017, when it began what was to become an unprecedented rise. In December 2017 it peaked at a little over $19,400. A year later it is down to under $4000. Bitcoin is now billed as the most spectacular financial bubble on record.

As Bitcoin soared, Initial Coin Offerings (ICOs) began to look uncannily like the prospectuses of South Sea Bubble companies (such as my personal favourite: “For carrying out an undertaking of great advantage; but nobody to know what it is”). Economists, who pointed this out, including this columnist, were dismissed as luddites who were stuck in old school thinking. Cryptocurrency and blockchain were the ultimate technological disrupter. We were on the cusp of a new economic architecture where the old rules would no longer apply.

Today’s prominent fiat currencies such as the US dollar began life as promissory notes issued by governments mostly to finance wars.

The cryptocurrency techno-warriors may yet have the last laugh. But to do that they would do well to learn a thing or two about the competition.

Up until they were colonized a century ago, my Agikuyu forebears were moneyless. In Elspeth Huxley’s irreverent parody of the Agikuyu’s early encounters with Europeans Red Strangers, this is what ensues when Muthengi is offered a job that pays five rupees a month: 

“I do not want these metal objects,” Muthengi answered. “What can I do with them? Why does he not give me goats?”

It is the same as if he gave you goats” the interpreter said. “You can exchange rupees for goats.”

“How many are needed to obtain a goat?”

One rupee will buy one goat?”

Muthengi could conceal his incredulity no longer. It was impossible to believe that the world held anyone so foolish as a man who would surrender a goat for a useless piece of metal possessed, it seemed, of no magical powers. But the thought of five goats a month burrowed like a mole underneath Muthengi’s mind. It seemed incredible, yet what if it could be true? Five goats a month, thirty goats a season, two hundred and ten goats in four seasons with the increase of one to each female in a season…it was impossible to encompass so many goats with the mind’s eye.

Muthengi accepts, dutifully converts his five rupees pay into goats every month, and becomes very rich.

In economics, we tend to look at money like Muthengi. Since money is not of itself productive people ought not hold on it longer than necessary, they would convert it to goats as soon as they are able. Money would be constantly changing hands, lubricating commerce. Why then, is money such a big deal?

To study questions like these, economists sometimes resort to reverse engineering to see whether we can build a model in which the thing in question arises “endogenously.” By “endogenous” we mean that it is not introduced by an outside agent, such as the mysterious Satoshi Nakamoto.

As Bitcoin soared, Initial Coin Offerings (ICOs) began to look uncannily like the prospectuses of South Sea Bubble companies. Economists who pointed this out were dismissed as luddites who were stuck in old school thinking. Cryptocurrency and blockchain were the ultimate technological disrupter. We were on the cusp of a new economic architecture where the old rules would no longer apply… The cryptocurrency techno-warriors may yet have the last laugh. But to do that they would do well to learn a thing or two about the competition.

Students of economics know that money serves three functions: a medium of exchange, a unit of account and a store of value. Our earliest ancestors were hunter-gatherers. We do not know for sure whether hunter-gatherers invented money. It is not evident that small bands of hunter-gatherers would find need to invent a medium of exchange, or units of account.

But one thing we are sure of is that hunter-gatherers grew old. They would have had to figure out some means of surviving in old age. One of these is to cultivate social bonds which obligate progeny to provide for the elderly. This is quite evidently true, but it is not entirely sufficient since not everyone will have children, and it is far from certain that children will survive to support their parents in old age. Thus, kinship-based old age security will result in some old people enjoying good care from their progeny, and others dying of destitution, quite an unsatisfactory situation.

Trading seems to be one of the things that we do naturally. Two hunter-gatherers, one who has caught an antelope and the other has harvested wild honey bump into each other on the way home. Can I have some of that, for some of this? Markets enable strangers to meet each other’s needs. Can the market find a solution for the old age security problem?

Table 1

Table 1

Now, imagine a small hunter-gatherer community with a population of two hundred people. Each person lives for two periods, youth and old age, and is endowed with three units of a consumption good, manna from heaven if you like, when young and one unit when old. As per the law of diminishing returns, consuming the first unit yields 20 units of happiness, the second yields 15 and the third yields 5 units. As shown in the table, if each person consumes only their endowment, they enjoy 60 units of happiness. If they can trade so that each person consumes two units in each stage, each person would enjoy 70 units of happiness in their lifetime.

In economics, we tend to look at money like Muthengi. Since money is not of itself productive people ought not hold on it longer than necessary, they would convert it to goats as soon as they are able. Money would be constantly changing hands, lubricating commerce. Why then, is money such a big deal?

This set up is called an overlapping generations model and is one of two devices that economists use to study long run economic dynamics (the other one is called an infinite horizon model). It was formulated by French economist Maurice Allais and refined by Paul Samuelson in a seminal 1958 paper titled A Consumption Loans Model of Interest with or without the Social Contrivance of Money. My set-up here conveys the gist of Samuelson’s model but the formulation and parameters are my own.

If the community can find a way to trade, everyone will enjoy 10 more units of happiness.  One way of thinking about this is as an increase in life expectancy from 60 to 70 years. The problem with this trade is that it cannot be conducted bilaterally, peer-to-peer if you like.  The young can support the old today, who will then die. For their own old age security, they will need the support of the next young generation which is as yet unborn. However, if society were to device a voucher, a receipt if you like, that is given to each prime-age adult in exchange for giving up one consumption good unit to support an old person, they can trade vouchers with the subsequent generation.

Be it a strip of buffalo hide, or a string of cowrie shells, a social security card or a promissory note, it stands to reason that once it’s invented each successive generation will value them, since everyone will also need to secure their old age with the successor generation. Individuals need no longer fear old age destitution on account of not having family support in their old age. In fact, this market system could have the unintended consequence of undermining the kinship system, as Alessandro Cigno observes in his book Economics of the Family:

“the growth of the financial sector (including in that the social security system, as well as banks, private insurance and the stock exchange) tends to coincide, in the development of an economy, with a sharp fall in fertility, the break up of extended family networks and a widespread reluctance on the part of the middle aged to accept responsibility of elderly relatives.”

Now that we have a theory of money, we can examine what attributes sound money should have. First, it needs to be trusted. Every voucher must be a legitimate store of value. It is not difficult to see that people entrusted with its production may be tempted to game the system by producing more vouchers than needed, and some people will find themselves with vouchers that command less than what they put it. Second, it should be possible to increase the number of vouchers in tandem with the population growth To see this, let us suppose the next generation increase to 110 people, an additional ten vouchers will be needed otherwise some of its members will be locked out of the intergenerational trade.

What then, are the lessons to be learned by people seized with the idea of re-inventing money?

One of the key requirements of sound money is a credible supply rule. In our simple model, the anchor is population growth. But it so happens that in our model population growth and economic expansion are identical, therefore it is the same as a money supply rule that is anchored on the size of the economy. Satoshi Nakamoto decreed that the bitcoin algorithm would cease after 21 million of them were mined. Why 21 million? Nobody seems to know. In effect, as a currency, bitcoin had the same flaw that undermined gold and silver, namely arbitrary supply that is unrelated to demand.

A second flaw is the tech-hype the cryptocurrency as the ultimate disruptive technology that would liberate society from the state-financial capitalist stranglehold. Because the value of technology innovations is highly uncertain, the value of bitcoin became entwined with people’s subjective guesses and predictions of what that value might turn out to be, as opposed to the economic fundamentals. We call this a sunspot equilibrium. For an asset purporting to be money, it is a highly undesirable attribute. It is this particular flaw that fueled the speculative bubble. This eventuality could have been mitigated by creating two assets: one that would profit from the innovation and one that reflected the economic fundamentals.

One of the key requirements of sound money is a credible supply rule. In our simple model, the anchor is population growth. But it so happens that in our model population growth and economic expansion are identical, therefore it is the same as a money supply rule that is anchored on the size of the economy. Satoshi Nakamoto decreed that the bitcoin algorithm would cease after 21 million of them were mined. Why 21 million? Nobody seems to know.

The third and perhaps fatal flaw is that cryptocurrency inventors failure to appreciate that fundamentally, money is a social contract. Social acceptance is what makes cowrie shells, beaver pelt, silver, gold or pieces of paper issued by government a currency. Of all our social contrivances, the one that money shares most attributes with is the state. It should not surprise then, that money has evolved into government-issued fiat currencies. But just like in governing, it does not mean that governments will excel in monetary affairs. In fact, the quality of a country’s money and governance tend to be closely correlated. Robert Mugabe’s ZANU-PF regime is but the latest to make a mess of both.

Monetary delinquency is one of the surer harbingers of revolution. If government makes a mess of our money, we can always behead the King. Which is just as well that Satoshi Nakamoto had the foresight to be anonymous. Could be he/she/they knew something that their starry-eyed cryptocurrency enthusiasts did not.

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Shopping Mall Economics: A note on the value of the Kenya shilling

What does a recent spat between the IMF and the Central Bank’s Prof Patrick Njoroge, himself a veteran of the Fund, tell us about the state of the Kenya shilling? By DAVID NDII.

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Shopping Mall Economics: A note on the value of the Kenya shilling

Is the Kenya shilling overvalued or not? According to the IMF it is currently overvalued by 17 percent. In an unusually combative response to his former employer the Central Bank governor says that is only off-kilter by 5 percent and accuses the IMF of making Kenya a “guinea pig in its new approach.” The offensive claim, contained in the IMF’s latest report on the country dated October 2018, states as follows:

“The EBA-lite methodology for the exchange rate suggests that the external position is weaker than fundamentals. The current account approach shows that the current account deficit (both actual and cyclically adjusted) are above the norm (the CA gap is -2.5 percent), suggesting an overvaluation of about 17.5 percent of the real exchange rate. This can only marginally be explained by the policy gap. The REER approach also shows a similar-size of overvaluation, equivalent to about 18.0 percent. Again, the policy gap is marginal. Given the continued appreciation of the real exchange rate, the external position is assessed to be weaker than fundamentals. Regarding the last approach, the external sustainability approach, it was not possible to use it as the international investment position data is not yet produced by the authorities.”

This needs a fair amount of disambiguation. EBA is a needless acronym that stands for external balance approach for exchange rate assessment. The methodology is described in an IMF paper published in 2013 as an update of a previous methodology known as CGER. CGER is another needless acronym for consultative group for exchange rate assessment. This EBA thing appears to be what the CBK governor is referring to as a new approach.

The methodological spat is a red herring. Economic models are tools, not oracles. What we have here is workmen quarrelling over tools. Our top three economic mandarins are former IMF staffers. Surely, as former colleagues, they can sit together with their colleagues and their models and converge on an assessment as to whether the shilling is overvalued or not?

The IMF refers to three methodologies: the Real Effective Exchange Rate (REER), the current account and external sustainability approach. Of the three, the REER is the most intuitively understandable and also the one for which we have data. But what is this animal the REER?

The methodological spat is a red herring. Economic models are tools, not oracles. What we have here is workmen quarrelling over tools. Our top three economic mandarins are former IMF staffers. Surely, they can sit together with their colleagues and their models and converge on an assessment as to whether the shilling is overvalued or not?

Suppose bananas are retailing at KSh 100 shillings a bunch in Kenya. The Kenya/Uganda shilling exchange rate is one to ten. At this exchange rate and banana price, 20 percent of bananas are coming from Uganda. Suppose price of Kenyan bananas goes up to KSh 125 a bunch (e.g. because of increase in taxes), and exchange rate remains the same. Ugandans can continue to sell bananas in Kenya profitably at KSh 100 while many Kenyan producers cannot. In fact, Ugandans are likely to hike their price to let us say KSh.110 making Kenya an even more profitable market than their home market. Uganda bananas will flood the market and put Kenyan producers who are not profitable at Ksh. 110 out of the banana business. For the market to remain at the old equilibrium (i.e. 20/80 Uganda/Kenya market share) requires Kenya shilling to fetch USh. 8.00 so that to get USh. 1000 as before, the Ugandans will also have to sell their bananas at KSh125.

Its readily apparent that if our domestic prices go up faster than those of our trading partners, then foreign goods will keep becoming cheaper. But you cannot tell by just looking at the dollar shilling exchange rate. We need to factor in the price movements with every trading partner. The REER is an index that combines the relative exchange rate and price movements of all our trading partners.

If the REER is rising, our goods are becoming more expensive. We can expect to import more and export less. If this happens our trade deficit will widen. If the trade deficit continues to widen, we run the risk of defaulting on our international obligations in particular debt service and repatriation of profits and capital. This is where the IMF comes in. The IMF’s mandate is to maintain international financial stability. The IMF is a financial cooperative whose job it is to ensure members do not run into external payments difficulties, and to bail them out when they do, in order to keep global finance and commerce going.

The spat between the IMF and the CBK is therefore about our external creditworthiness. The key indicator for this is the current account balance. The current account balance has two components: trade and income. The trade account I have already mentioned. The income account consists of payments for “factor services” such as interest (use of capital), labour (e.g. for services of Kenyan troops abroad) and another component we call unrequited transfers (meaning money we have not earned) such as diaspora remittances, grant aid and such like. The external account in turn, has a third component, the capital account where, as the name suggest, we record investment transactions.

The spat between the IMF and the CBK is…about our external creditworthiness. The key indicator for this is the current account balance.

This is how it works. Kenya Airways buys an aircraft using a foreign loan. The aircraft is entered in the trade account as an import and simultaneously in the capital account as a capital inflow. The following day it ferries passengers from Lagos to Dubai. The income is recorded in the trade account as a service export. At the end of the month it remits repayment on the loan. The interest is recorded in the income account as a factor service payment and the principal is in the capital account as a capital outflow.

The net of the current account and the capital account are added together to give the overall balance. An increasing overall deficit depletes foreign reserves, while a surplus leads to a build up of reserves. Current account surpluses mean that a country’s savings exceed its investment; it can, therefore, export capital, like China. A current account deficit means that a country is investing more than its savings, in other words, it is importing capital (either debt, FDI, remittances, grants etc).

Chart 1

The country’s creditworthiness thus depends not just on trade but also on other financial flows, that are determined by factors other than trade competitiveness, both economic and non-economic. Complicated stuff.

Both the IMF and CBK agree that the shilling has appreciated, but they disagree on the magnitude. The IMF also implies that the appreciation is a reflection of policy action while the CBK maintains that it is a reflection of market forces. The IMF view translates to accusing the CBK of misleading the public by espousing a monetary policy that claims to target inflation, while in practice it is actually targeting the exchange rate. The IMF’s “smoking gun” is the fact that the NEER has flatlined for the past six years (see Chart).

Recently the IMF re-classified the Kenya shilling from a “floating” (meaning market determined) to “other managed arrangement.” This means the IMF is convinced that the Central Bank is propping up the shilling. What reason would the Central Bank prop up the shilling especially if it undermines the country’s competitiveness and solvency?

Foreign currency debt exposure is one reason. The interest payments on the first Eurobonds issued in 2015 ($185 million a year) has increased by KSh 3 billion, KSh 16 billion to KSh 19 billion on account of the depreciation of the shilling. Translate that to the total interest payments this year which are in the order of $1.4 billion dollars. The shilling has weakened by about three shillings to the dollar since the beginning of the financial year. The total interest payments this year which are in the order of $1.4 billion. This translates to a KSh 4 billion squeeze on a government that is already living way beyond its means. The last thing the Treasury wants to hear is that the shilling should be trading at about 120 to the dollar.

Recently the IMF re-classified the Kenya shilling from a “floating” (meaning market determined) to “other managed arrangement.” This means the IMF is convinced that the Central Bank is propping up the shilling. What reason would the Central Bank prop up the shilling especially if it undermines the country’s competitiveness and solvency?

Another reason is pressure to keep low interest rates. Interest rate is the policy instrument in an inflation-targeting monetary policy regime such as we claim to have. Central Banks are given statutory independence over the conduct of monetary policy to insulate them from such pressure so that they can raise interest rates when they need to, even when it is politically costly for the government of the dayParliament’s capping of interest rates two years ago is ample demonstration that political pressure on Central Banks is real.

Keeping interest rates artificially low puts pressure on the exchange rate. A weakening currency creates inflationary pressures, which is what the Central Banks are mandated to control in the first place. The Central Banks end up trying to meet incompatible objectives, low interest rates, low inflation and a stable currency.

This is precisely what happened from mid-2009 to September 2011. The Central Bank bent over backwards to accommodate the government’s economic stimulus meant to respond to both the post-election violence and the global financial crisis. Interests rate were driven to the floor. From mid-2010 to mid-2011 the benchmark 90-day Treasury bill rate was kept below 3 percent. The IMF’s charts show how this ended— with a very hard landing. The shilling which had been propped up at about 80 to the dollar, started unravelling in April peaking at KSh100 to the dollar in September. The Central Bank was forced to jack up interest rates in a hurry. By the end of 2011, the T-bill rate was heading to 20 percent.

The IMF seems to believe that, left to market forces, the shilling will depreciate in real terms. The IMF’s REER chart covers eight years, from 2010 to 2017. A longer timespan does not necessarily support this contention (see Chart). My chart goes back to the beginning of the liberalized regime in 1994. What do we see? The shilling has been appreciating in real terms since it was liberalized. Overall it has appreciated 157 percent, by 9 percent per year on average. This could mean that the Government has been propping up the shilling all these years, or that market forces are not working the way the IMF expects.

Chart 2

Many Kenyans have observed that we have become an importing country. One also hears policymakers lamenting that we are losing our markets in the region and blaming all manner of things. There is no mystery to it.

My [assessment is that] the shilling has been appreciating in real terms since it was liberalized. Overall it has appreciated 157 percent – by 9 percent per year on average. This could mean that the Government has been propping up the shilling all these years, or that market forces are not working the way the IMF expects.

But is the Central Bank propping up the shilling? That we cannot be able to tell that easily. There are lots of moving parts. It can also be on account of some trading partners manipulating their currencies: China, for example, is regularly accused of maintaining an artificially weak currency. China has a big weight in our REER and it’s been growing over time.

The ultimate question is whether it is sustainable. There are two parts to this, financial and economic. The widening trade deficit has been plugged by remittances and portfolio inflows (money flowing into the stock exchange and government securities), not all of it honest money, and lately, government commercial borrowing, the ubiquitous eurobonds and syndicated loans. As long as these keep flowing, the show can go on.

Why are we told the economy is growing and yet we cannot feel it? This is the shopping mall economy. How long can we keep that going?

The economics is a different story. This is the shopping mall economy. It is not good for employment and equity. It is not good for employment, or equity, or sustainable growth. It is part of the answer to the question that Kenyans keep asking: why they are told the economy is growing and they are not feeling it. This is the shopping mall economy. How long can we keep that going? Your guess is as good as mine. Governments are known to manipulate currencies and to distort financial markets generally. The IMF is known to (a) have more faith in market forces than warranted and (b) get the workings of those market forces wrong. What to do?

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