By Peter Sinkamba

BOZ CURRENCY INTERVENTION POLICY IS A FAILED POLICY IN ZAMBIA

A couple of days ago, the Bank of Zambia Governor informed the Nation that its meeting held on February 14-15, 2022, the Monetary Policy Committee (MPC) decided to hold the Policy Rate at 9.0 percent. The Nation was informed that in arriving at this decision, Committee took into account the sharp decline in inflation since the November 2021.

Additionally, the Nation was informed that to help meet demand and dampen volatility in the exchange rate, the Bank of Zambia continued to support the forex market and sold a net of US$146 million.

I have no problem with the MPC intervention through the Policy Rate. However, I have always opposed currency intervention policy.

The currency intervention, also known as foreign exchange market intervention or currency manipulation, is amonetary policy operation, where a central bank or government sells foreign currency in exchange of local curreny with the intention of influencing the exchange rate and trade policy.

Currency intervention cannot work in Zambia for many reasons. Most importantly, it can not work in our country because our our forex earnings have dwindled significantly for this country in the last seven years. Our GDP has dwindled from around US$28 billion in 2014 to somewhere around US$23 billion in 2022. Thus, using currency in a scenario like this can deplete the foreign reserves pretty quickly. We saw this policy drain the foreign reserves from over US$3 billion in 2016 to less than US$1.5 billion in 2021.

And with the latest intervention, currency intervention is already proving it still remains a wrong rrmedy for Zambia. The MPC justified currency intervention on account that in January 2022, increasing demand pressures continued resulting in the Kwacha depreciate by 2.9 percent against the US $ to a monthly average of K17.27. Indeed, the rate of the dollar to Kwacha reduced from around K19 to aboug K17 per dollar.

However, into less than one week, the rate is already headed for K18. It is already around K17.60 per dollar. At this rate, in two week’s time, it will land back at K19.00 per dollar, and more.

Best strategy to deal with dollar rate is expanding the export fortfolio significantly, like can be done through the Green Party and Zambian Hemp Growers and Industries Association Model of cannabis and hemp Industrialization.

To put this in simpler perspective, the entire US$146 has been bought of at K17 per dollar, and will soon be sold off at K19 per dollar. And the profit will be?