Supply and Dollar

The relationship between supply and the dollar is a critical concept in the world of economics. It is known that when the supply of goods and services increases, their prices tend to decline due to the excess of products available. On the other hand, when the supply of goods and services decreases, their prices tend to rise due to the shortage of products available in comparison to the demand.

Moreover, the value of the dollar is also impacted by supply and demand. If there is a high demand for the dollar, its value tends to increase compared to other currencies, while a low demand leads to a decrease in its value. Understanding this relationship is crucial, as it can significantly impact a country’s economy, particularly its ability to trade with other nations.

Over the past decade, the Kenyan shilling has experienced a significant depreciation, primarily due to persistent current account deficits, rising debt levels, and the surging prices of commodities such as crude oil. The weakening of the shilling can be attributed to the high demand for dollars from importers in the commodity and energy sectors, caused by the increasing crude oil prices globally. This situation was compounded by supply chain constraints and geopolitical pressures during the pandemic recovery period, which constrained supply in the economy.

In 2023, the Kenyan shilling continues to depreciate primarily due to the continued dollar demand from importers in the oil and energy sectors, leading to a shortage of dollars in the Kenyan market. Consequently, it is crucial to understand the relationship between supply and the dollar, particularly for those seeking a more comprehensive understanding of the global economy, as it impacts a country’s economic performance.