The decision by the Central Bank of Kenya (CBK) to let the Kenya shilling find its level is a sound one that could help the country reset its economy.
For years, the International Monetary Fund (IMF) and other observers have held the view that the local currency was overvalued.
The CBK, for its part, dismissed the claims, saying it was not propping up the shilling.
Now under new leadership, the apex bank says it has stopped intervening in the foreign exchange market. The announcement comes at a time the shilling has been depreciating rapidly against hard currencies.
The weakening of the shilling, of course, brings hardship in the form of more expensive imported goods as well as reducing the purchasing power for those paying for foreign services.
But there is a counterbalancing benefit to a weaker currency. Countries like Egypt have devalued their currencies multiple times.
The biggest beneficiaries are exporters including producers of cash crops and manufacturers.
With a weaker shilling, their goods fetch more when sold in the international markets where they also become more attractive in comparison to other producers.
Thus, they stand to grow their market share. Such a jump in demand should be followed by expansion in production and jobs since more workers will be required to grow output.
Kenya’s decision to allow its currency to trade freely strikes a fair balance that should reflect the country’s economic position from which various economic actors can make their moves.
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