A few days ago, Uganda’s Shilling weakened sharply against the US dollar, and the Bank of Uganda has taken drastic measures to reduce the money supply in the population through a restrictive monetary policy tool of raising the Central Bank Rate from 9.75 percent to 12 percent.
As this is intended to raise the interest rates for loans and reduce borrowing, consumption and expenditure, there is need to explore a country’s currency strength by its exchange rate in dollar terms against the quantity of goods and services it can purchase domestically in relation to other countries amid the soaring Central Bank Rate. The concept of purchasing power and Nominal Gross Domestic Product (GDP) help explain this relationship.