POWERS AGAINST THE SUPER CURRENCY
Reikims has been moved by the ongoing concerns about the Kenyan national reserves and the state of Kenyan Shilling against the dollar. Well who else could give us a better insight into this than Economists Muguro himself. Shall we…
What it means if the dollar losses value to the Kenyan Economy and Dollar Reserve.
In the recent occurrences in the global market we have seen various changes when it comes to financial markets and trade blocks. China, Russia, Brazil, India and South Africa are looking to develop a currency that will be used in place of the US dollar in transactions in among this trade block and this will see a considerable effect on the value of the dollar in the global market. As the BRIC develops this currency it means that the reserves held in dollars will ideally loss value. Currently the dollar is fluctuating each and every day, seeing the resent changes on the most traded currency being the Chinese Yuan has considerably caused the value of the dollar weakening. And if the BRIC successfully comes up with a currency to use in place of the dollar that means that the value of the dollar will plummet and those countries holding the dollar as a reserve Kenya being one will be in jeopardy economically.
In the resent report Kenya has been said to be having a reserve of about $7.5 billion in a report released in January of 2023(Central Bank of Kenya). I know we might be asking what is this foreign exchange reserve, right? Well, foreign exchange reserve can be defined as the foreign assets held by a central bank of a country mostly not denominated in the domestic currency. I’d like to liken it to having a cow or a house that is built on a piece of land that’s not yours, ideally speaking. So a decrease in the value of the dollar will lead to the CBK increasing its Foreign reserve as countries tend to accumulate more of their dollar reserve when the value of the dollar is low. This move of the CBK increasing its reserve of the dollar will mean an increase in its balance sheet and therefore an injection into the economy increasing money supply in the economy. And as we know an increase in the money supply in an economy will lead to lower interest rates on loans. This will turn see lots of investment in the economy. As investment increases, more money is held in the hands of consumers bringing about more spending. And as an economist will tell you this will bring an increase in the Gross Domestic Product given by Y=C+I+G+X-I, where C-consumption, I-investments, G-government expenditure, X-exports and I-imports. A positive addition on any of the variables C, I, G and X will see to a rise in the GPD of a nation which generally can be termed as economic growth in a nation. Therefore, worry less this might turn out better than we had expected. As this increases in reserves increases we might as well be exporting more than we import or maybe add a considerable amount of exports and try to increase our Balance of payment. Isn’t that something awesome for us as Kenyans in this depressing moment?
