My inspiration comes with the slow growth of exports and tourism and a resurgence of global inflation have created dollar shortages in some African economies.
Rising inflation in Africa is affecting the portfolio behavior of many income savers given that the rising cost of living weakens the future purchasing power of the local currency. Instead of saving in the local money, they prefer to save in dollars, thus pushing up the demand for the dollar.
A currency's strength is determined by the interaction of a variety of local and international factors such as the demand and supply in the foreign exchange markets. The interest rates of the Apex bank and the inflation and growth in the domestic economy as well as the country's balance of trade.
These factors include inflation rates, interest rates, economic growth, political stability, and geopolitical events.
The moderation of global inflation and the recovery of global growth are likely to bring an improvement in the terms of trade and the recovery in export demand. There is little domestic policymakers can do about this. While they do so, they can take policy measures to address the immediate reality of the dollar shortage
The usual advice is to cut public spending. That will reduce the demand for imports. It’s politically difficult. Governments are also usually advised to encourage the production of exports and import substitutes. That is challenging and takes time.
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