A Weak Shilling Does Not Always Indicate a Doomed Economy

By



In the last quarter of 2020, the Kenya Shilling has been on a sharp decline. On 30th November, the currency fell beyond the 110 mark. It was trading at 110.07 which raised eyebrows among Kenyans. Some discussions imply that the currency should always be on the rise. But did you know that there is a positive and negative effect whenever the currency moves towards any direction?

In short, none is better between a weak or a strong Kenya Shilling against the dollar depending on the context you look at it. Meaning, there are sectors that suffers a blow in case of any of the two situations. 

Therefore, if the efforts are solely to make the Shilling strong, it could only serve the interests of particular sectors. And most of the time, that will be the import industry. On the other hand, majority of export dealings have an advantage in the case of a weak shilling.

And that is where the Central Bank comes into play championing for a competitive exchange rate for balanced interest of the importers and exporters. The Central Bank of Kenya comes up with a policy atmosphere that does not aim at a certain direction of the exchange rate.

A weak shilling

Whenever the shilling declines, there is a negative impact because it means that financing imports becomes more expensive. On the other side, a weak shilling is good news for the country’s exports. It leads to reduced foreign prices of the commodities exported from the country which leads to a competitive edge in the market.

Moreover, people increasingly prefer to invest locally than internationally in such a situation which has the potential to increase the income earning opportunities. Besides, it discourages ultimate consumption of lavish imports. The above mentioned are critical in improvement of current account balance and promotion of economic growth.

Furthermore, there are countries that have intentionally harnessed the supremacy of a weaker currency. In fact, some countries for a long time have faced criticism for unethically devaluing their currency, thus having an unjust advantage in the international trade over the major world economies.

The downside is on the developing countries like Kenya, where there is huge reliance on imported oil. A weak currency could lead to inflation.

A strong shilling

A strong shilling has the potential to dampen the economic growth by reducing the competitiveness of the country’s exports. Products from the country become expensive in the international market while imports become cheaper. It means that it becomes very cheap to import goods which pose a threat to the domestic competitive industries. 


A strengthening shilling is no different from a tax hike. Local goods manufacturers suffer a burden as it becomes cheaper to import the same products. The excess capacity could lead to layoffs as a result of recession.

At this moment, you would now wonder which way to go. Economists hold the opinion that a suitable exchange rate should be at a level that makes the country’s exports commodities competitive in the global market. 

The Central Bank has a role to monitor and regulate the game because the weakening or strengthening of the currency needs to happen in line with the economic factors. Such a regulation is critical in ensuring no negative impact on economic growth of a country that would discourage investments.

 

 

 

 

 

 

Fred Kabiru

Fred Kabiru is a content creator and SEO specialist. He is passionate and experienced about Business, Digital Marketing, News and Technology. He is a believer of content worth reading for a brand worth following.

Comments

Post a Comment

Popular posts from this blog

Make Money Online Today (Step By Step Guide)

By
Image
Gone are the days when you had to open a storefront to start earning. The internet has changed the game. Today, you can do business in a remote location: no shop, no stocks. Interesting? Well, you don’t have to own the products. All you need is to have that client and come up with how the commodities reach them. Additionally, the internet has opened up a lot of income-earning opportunities. From your couch, it is possible to see your money grow. Such is the case when you join First and Fast Communication System Company (FNFCOM). How does it work? Well, fnfcom is an online airtime distribution system enabling you to have sufficient top-up. Besides, the company seeks to help you out of those mobile debts, the likes of Fuliza, Mshwari, etc. It is time to get out of the cycle of debts. So, how do you go about it? Sign Up at fnfcom The first step is to create an account at fnfcom.   Go to your browser and load the website www.fnfcom.com . It takes you directly to the   ...
Read more

4 SECRET TECHNIQUES TO MAKE YOUR BUSINESS MORE AUTHENTIC

By
Image
 The Untold Secret to Mastering Authenticity. There's something to be said about authenticity in business . It allows us to show up as ourselves, not the cardboard cutouts we think others want to do business with. The result? A much more enriching and personable work experience and an irresistible magnetism that attracts new business. Authentic people and things are the real deal. And when it comes to business, this matters more than you may think. Take a look at the following techniques to build and maintain authenticity in business. #1. Use storytelling Authentic people and things have stories behind them. These stories back up claims and highlights how they got to where they are today. An authentic meal? Passed down from generation to generation. An authentic artifact? Found through an excavation in some part of the world. An authentic business? Started in the basement of a factory, built up through years of struggle, determination and grit. You need to be a storyteller. A...
Read more

TOP 5 REASONS WHY YOUR BRAND NEEDS LOYALTY PROGRAMS

By
Image
 The Hidden Secret To Brand Awareness. As brands constantly invent new ways to engage with their audience, customers are concurring with new technology faster and faster. They expect a higher form of a relationship with their brands. To succeed, you need to create an engaging customer experience. A well-designed and well-executed loyalty programme c an help you retain existing customers, attract new customers, reduce turnover and drive profits. Customer loyalty should be easy. And, by combining the ability for customers to pay for goods and reap the rewards via the same marketing channel, it really is easy. There are 5 primary reasons why your business should have a loyalty program:- #1. Grows your business through referrals The first stage of operating a successful business is chasing and maintaining customers. Without them giving you their money, your business ceases to exist. The second stage is one that, sadly, many businesses never get to getting current customers to bring in...
Read more

5 INCREDIBLY USEFUL TIPS FOR NAMING YOUR START UP.

By
Image
 Tips For Small Businesses. Entrepreneurs fret over packaging and host of other details as they started, and then leave one of the most important aspects as an afterthought. The sad truth is that the right name can sometimes make all the difference when it comes to propelling a business to success , rather than just slogging on. The wrong name can do worse than fail to connect with customers. It can also result in insurmountable business and legal hurdles. In contrast, a clear, powerful name can be extremely helpful in your marketing and branding efforts. Whether you are a new small business owner or you're trying to launch the next big tech startup, these tips can help you choose the perfect name for your company. #1. Keep it simple, short and scalable This is one of the best tips that you can follow to name your company. You should choose a name that is simple, short, scalable and memorable. Another common mistake that startup owners make is to choose names that are too restrict...
Read more