Money

Kenya uses the Shilling as its currency. They have both paper money and coins. The coins are fractions of Shillings and the paper money is whole Shillings (Classic Escapes, 2009). The Shilling is fiat money because it has no intrinsic value. One Kenyan Shilling is equal to .0128 United States dollars (CIA, 2009).
Kenya’s currency is not very stable. Since 2004 the inflation rate has been around ten percent. However, just this year the inflation rate has soared to over twenty six percent (CIA, 2009). A large rise in the price of food caused this jump in inflation (CIA, 2009). Since there is so much inflation the Shilling is not a good medium of exchange. It is difficult to measure wealth with a currency that is constantly changing in value.
The Shilling is not a good store of value either. Since the inflation is so vast if someone were to save a Shilling today there is no telling how little it will be worth one year from now. This has especially detrimental effects on Kenyans since they have such a high unemployment rate. The people who become unemployed are left only with the money they earned when they were working. They are forced to save this money to buy food and necessities. However when inflation is rising and a person is no longer earning an income, they are essentially losing money because they have the same amount of money but the prices of everything are increasing. The value of their money is decreasing.
The high inflation rate also makes the Shilling a poor unit of account. The currency keeps decreasing in value, causing goods and service to cost more and more. Factors of production are never able to stay at the same price from year to year because of this.
Kenya does have a central bank to try to combat inflation though. The Central Bank of Kenya’s role is to maintain stable prices, maintain a stable market, and comply with new government policies. The Central Bank of Kenya is also in charge of the foreign exchange policy, storing reserves, making sure merchants and firms are authorized, and issuing currency (Central Bank of Kenya). According to the Central Bank of Kenya’s website, on August 14, 2009 the Central Bank discussed that food prices needed to stay consistent so that excessive inflation does not occur. The Central Bank also plans to try to invest more in technology and give out loans to people in rural areas. These policies have not helped much yet because they have not had enough time to be put into place (Central Bank of Kenya, 2009). However, given time these policies have potential to help with both Kenya’s inflation issue and their economy as a whole.

References:

Central Bank of Kenya. "About Us." Central Bank of Kenya. N.p., 2009. Web. 1 Dec. 2009. .

Classic Escapes. "Kenya Money Matters." Classic Escape. Classic Escape, 2009. Web. 1 Dec. 2009. .

CIA. "Kenya Economy." CIA World Factbook. CIA, Nov. 2009. Web. 18 Nov. 2009. .